Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Exam technique for analysing performance
The below steps must be adopted when answering a question on analysing performance:
Step 1 Review figures as they are and comment on them.
Step 2 Calculate relevant ratios according to performance, potential and position (if possible).
1 Performance (profitability) -how well has the business done
Return on capital employed (ROCE)
{Profit before interest & tax (PBIT)/Capital employed (CE)} X 100%
Operating profit margin
(PBIT/Turnover)X 100%
Asset turnover
Turnover/Total assets (number of times)
(Operating profit margin x asset turnover = ROCE)
Return on equity (ROE)
[Profit aftertax/ Shareholder funds (capital + reserves) ] x 100%
2 Position (liquidity)-short term standing of the business
Current ratio
Current assets/Current liabilities(number of times)
Quick ratio
Current assets -inventory/ Current liabilities (number of times)
Gearing -equity
Debt capital/ Equity (shareholders' funds)X 100%
Gearing -total
Debt capital/ [Debt + equity (total capital] X 100%
Interest cover
Profit before interest & tax (PBIT) / Interest paid (Number of times)
Trade payable days
Trade payables/Cost of sales (or purchases)x 365 days
Inventory days
(Inventory/Cost of sales) x 365 days
Trade receivable days
(Trade receivable/ Sales) x 365 days
Working capital cycle
Trade receivable days + inventory days -trade payable (Days)
3 Potential (investor) -what investors are looking at
Earnings per share (EPS)
Profit after tax/Number of shares
P/E ratio
Share price/Earnings per share
Dividend yield
(Dividend per share/ Share price) X 100%
Dividend cover
(Earnings per share/ Dividend per share)
The above is not the complete list, but are the main ratios.
Step 3 Add value to the ratios by:Interacting with other ratios and giving reasons
a) State the significant fact or change (i.e.decrease orincrease)b) Explain the change or how it may have occurred by looking at business activities and other information.c) Explain significance of the ratio in terms of implications for future and how it fits in with the user’s needs.d) Limitations of ratio analysis. Look at the 2 figures used to compute ratio and criticise them. Also look at other factors that may distort the information (seasonal fluctuations, creative accounting etc.)
Another way of at discussing ratio's is to adopt 3W'sfor each ratio calculated:
WHAT
What has happened to the figures or ratios? Have theydecreased orincreased?
WHY
Explain why changes may have occurred by giving illustrations (think creatively!).
WOW
How do these changes affect the user of information -WOW that's great or not so great!
State about the two types of Government Securities There are two types of Government Securities which are offered: Government Floating Rate Bonds which pay a floating rate
a) Marketing might be vital to an organisation such as WHSG for several reasons, including: • The need to be a focus for the right kind of students to the school (there are riva
Price-Yield Relationship of a Callable Bond The price-yield relationship of a non-callable or a non-puttable bond is convex because price and yield are inversely proportional.
When a set of predetermined liabilities are given, the investor must construct a non-callable bond portfolio of homogeneous ratings by considering certain characteris
Q. What do you signify by Receivables Management? Ans. Receivable Management: - The term receivables refer to debt outstanding to the firm by the customers resulting from sale
State the economic conditions of cost of capital General economic conditions These include demand for and supply of capital within the economy and level of expected inflatio
Determine the name of some profit margin ratios Other profit margin ratios can also be computed: Gross profit/ turnover Profit after tax/ turnover Advertising co
Xcell engineering is planning to construct a futsal stadium which has 5 courts to be rented out at any point of time. Its initial cost of investment is RM$280,000. It is expected t
Net Income approach says that a raise in the proportion of debt financing in capital structure results in an increase in the proportion of a cheaper source of funds. This in turn r
The United States has experienced continuous current account deficits as the early 1980s. What do you think are the major causes for the deficits? What would be the results of cont
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd