Using FAME to look at ratios


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Using FAME to look at ratios

  1. 1. Searching for Ratios using FAME<br />
  2. 2. What are ratios<br />Ratios allow you to assess, the liquidity, solvency, efficiency and profitability of a company <br />Ratios allow you to gauge a company’s performance over time or against the performance of other companies<br />The financial information on the Balance Sheet allow ratios to be calculated<br />
  3. 3. What do ratios tell you about a company<br />Ratios allow you to assess the:<br />Liquidity of a company or it’s ability to meet its current financial obligations with cash and the current assets it has<br />Solvency of a company or it’s ability to meet it’s long-term obligations <br />Efficiency of a company or how effectively it is operating. Efficiency, therefore is a good measure of profitability<br />Profitability of a company or a definitive evaluation of the overall effectiveness of management based on the returns generated on sales and investment<br />
  4. 4. What are the main ratios?<br />Liquidity Ratios:<br /><ul><li>Current ratio – current assets divided by current liabilities
  5. 5. Quick or acid-test ratio – current assets minus stock divided by current liabilities
  6. 6. Defensive interval – your most liquid assets divided by daily operating expenses</li></li></ul><li>What are the main ratios?<br />Solvency Ratios:<br /><ul><li>Gearing - A general term that compares some form of owner's equity (or capital) to borrowed funds.
  7. 7. Gearing is a the degree to which a firm's activities are funded by owner's funds against creditor's funds</li></li></ul><li>What are the main ratios?<br />Efficiency Ratios<br /><ul><li>Debtors’ turnover – average credit sales divided by debtors over 365 days or how quickly you are collecting the debts that are due to you within a year
  8. 8. Creditors’ turnovers – average purchases divided by average credit purchases or how long you take to pay suppliers for items bought on credit
  9. 9. Stock turnover – average stock, i.e. opening stock + closing stock divided by 2 and thendivided by cost of sales or how long you hold stock before selling</li></li></ul><li>What are the main ratios?<br />Profitability Ratios:<br /><ul><li>Gross Profit Margin – gross profit as a percentage of sales: this is a good figure with which to compare with others in the same sector
  10. 10. Net Profit Margin - net profit margin is the net profit (i.e. profit less costs except interest and tax) expressed as a percentage of sales
  11. 11. Return on capital employed - The net profit expressed as a percentage of capital employed</li></li></ul><li>How do you search for ratios using FAME<br />FAME allows you to search on of 27 different ratios<br />You can select companies within a given sector or peer group with which to compare<br />You can select a company with which to compare over time<br />You can create a research format, highlighting the ratios you require<br />You can export your data into other software programs such as Excel in either a standard or graphic report<br />
  12. 12. Open your browser and type in the Learning Resources web address into the location bar …….. <br /><br />Select Electronic Resources<br />
  13. 13. Make sure that you have set your institutional cookie<br />Scroll down to the bottom of the Electronic Resources page and click on to the link<br />Once you’ve clicked on to the link, a pop-up window will appear and then close automatically – you only need to do this once<br />
  14. 14. Log into Athens<br />Athens is an authenticating system which allows students to access Middlesex University databases outside of the university<br />Click on to the Athens link<br />Log in using your IT user ID and your network password and once you have accepted the terms and conditions, you will be presented with a list of databases<br />
  15. 15. Searching FAME<br />Scroll down and choose FAME from the list of databases<br />
  16. 16. About FAME<br />FAME is a database that contains information about companies in the UK and Ireland<br />They provide extensive support from their user guide<br />
  17. 17. Extracting ratios from FAME<br />Imagine that you are interested in comparing the ratios of companies in the clothing industry in London<br />Making sure that you are in Expert Search, click on Activity/Industry<br />Select Major Sectors and then Textiles…..<br />
  18. 18. Comparing ratios across companies<br />Refine your results by geography <br /><ul><li>Click on Geographical Location, County and then choose London</li></li></ul><li>Reducing your results for analysis<br />Reduce your results in order to perform a ratio analysis – FAME will, however, pick out 10 standard companies from your search results<br />Choose companies with total assets of between 100 and 500 thousand<br />Select Financials – key financial – total assets from the left hand panel <br />The default is thousands of pounds – put in a minimum of 100 and a maximum of 500<br />
  19. 19. Reduce the selected companies by their total assets<br />
  20. 20. Look at the summary of your search choices<br />
  21. 21. Comparing ratios across companies<br />Imagine that you want to perform a current ratio analysis of a selection of companies for the last available year<br />Click on List from the left hand selection of tabs<br />Ignore the preset list of formats and select new<br />Choose ratios from the Sections pull down list<br />
  22. 22. Creating a report format<br /><ul><li> Don’t forget to save your format with a memorable name</li></li></ul><li>Saving your results<br />Once you have a list of companies together with their current ratio, export them into Excel from which you can create a variety of charts<br />
  23. 23. Exporting your Report into Excel<br />Select Export<br />Choose a file name and then export<br />
  24. 24. Exporting…..<br />A pop-up window will appear <br />
  25. 25. Opening the report<br />Double click on the link to open the report in Excel<br />
  26. 26. A graphic representation of ratios<br />Within Excel, there are options to represent your ratio information graphically<br />Select Insert<br />Highlight the rows and columns that you want to include and choose a chart<br />
  27. 27. The End<br />Back to the beginning<br />