Financial Ratios and Measures Review
Financial Ratios and Measures Review
Financial Ratios and Measures Review
RATIO ANALYSIS
Ratios can be used as indicators of business health or impending problems. There are two main approaches to ration analysis: Vertical Comparison of figures within one financial period. Comparison of figures from different financial years.
Horizontal
UNDERSTANDING RATIOS
Ratios must be interpreted after considering the economic and industrial conditions applying to the organisation. Ratios should be compared over time to determine the factors that have caused changes in the results and determine specific trends. Ratios should be compared to performance indicator (KPI). a reasonable
Ratios can assist to performance analyse any item or sub total in a profit & loss.
GROSS MARGIN %
Gross Profit --------------- X 100 Revenue
PROFITABILITY %
EBIT --------------- X 100 Revenue
OUTPUT
BANK SHAREHOLDERS
SALES
VARIABLE COSTS
GROSS PROFIT
FIXED COSTS
CONTRIBUTION..
DIVIDENDS
RI
Measures the final net profit rate after tax and interest
PROFIT MANAGEMENT
Product
P S Y C O
365
365
INVENTORY TURNOVER
Inventory -----------------COGS
365
Average Inventory =
CURRENT RATIO
Working Capital % =
Accs Rec. + Inventory Accs Pay./ Revenue * 100 * Time Period
How much in sales are generated from each $1 of capital invested in net assets
A negative amount CASH FLOW shows that cash flow has increased.
Short Term + Long Term Debt (Last Period) Short Term + Long Term Debt (This period)
Or ROCE
=
Shareholders funds Fixed assets Debtors Inventory Other current assets Cash
Bank overdraft Other short term debt (eg lease, Hire purchase & taxation Liabilities) Creditors
FINANCE
Capital Employed
DEBT CAPITAL
Bank Loans Bank Overdraft Leases Hire Purchase
EQUITY CAPITAL
Share capital Retained Income Reserves Other Equity Funding
OPERATIONS
Operating Working Capital
Accounts Receivables Inventories Other Current Assets (Accounts Payables)
NON-CURRENT ASSETS
Investments Intangibles Buildings Plant Equipment
Net Assets
COMPONENTS OF ROCE
EBIT
Revenue
Revenue
Net Operating Assets
X 100