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!
Trading Mechanism Of Future: Flow of the Order Any person who wants to trade in futures has to contact a Futures Commission Merchant (FCM) or a broker. First, let us look
The Option-Adjusted Spread (OAS) is a measure of the yield spread (expressed in basis points) which can be used to convert differences between the values an
You've just won a huge $100 million lottery. You've decided to invest your winnings in the following way: $30 million in real estate, $30 million in corporate bonds and $40 mil
Q. What do you mean by Treasury Bills? Treasury bills (TBs) are short-term government securities. The usual practice in India is to sell treasury bills at a discount and redeem
Q. Define the finance function? Is it a risk-return trade off? What is the basic role of a modern financial manager? What is the basic importance of finance function in the mana
Dividend yield method As per this method, the cost of Equity capital is the discount rate that equates the present value of expected future dividends per share with the net pro
Q. Determine Interest coverage ratio? Current interest coverage ratio = 7000/500 = 14 times Increased profit before interest and tax = 7000 × 1.12 = $7.84m Increased inte
Task I am sure you are aware that the corporate annual meeting is coming up soon. As part of the Treasurer's presentation, I have been asked to propose a Special Capital Requi
Explain the term- administration of decisions Conformance, compliance and efficiency This is focussed on the "administration of decisions" . Processes and procedures m
Categorization of management risk: Once each event has been evaluated, and been classified as to its probability and impact, the next step is to categorise those events. To do
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