Collaborate Session
May 2014

 Due date: 9 am (AEST) Monday 19 May 2014
 Weighting: 25%
Assignment
Ratio Analysis

Ratio Computation
 Calculate the ratios for 2010, 2011 and 2012:
 Ratios are on page 2 of the assignment (see next sl...

Ratios to be calculated:
1) Return on assets
2) Return on equity
3) Gross profit margin
4) Net profit margin
5) Asset tu...
Discussion
 What each ratio tells you about the business
 Whether the ratio is favourable or unfavourable
 Whether th...

 Present in business report format
 Reports should be single spaced, with main headings
in bold type
 Executive Summa...

 750-1000 words (+/- 10 %)
 Excludes:
 Executive Summary
 Graphs, Tables, Diagrams, Figures
 Appendices
 Table of ...

 Follow submission requirements
 Word limit: 750 – 1000 words (+/- 10%)
 Make sure you read and follow all the instru...

 Requires more than mere ratio calculation
 Emphasis on interpretation, evaluation, discussion &
reporting to show us ...

 Concise - short sentences that get right to the point
 Headings and sub-headings – improve readability
 Tables, grap...

SOME DETAILS ON RATIOS YOU ARE
REQUIRED TO COMPUTE
RATIOS

•This ratio indicates the amount of sales generated for
every dollar's worth of assets the business has.
•It is an indic...

• The profit generated by the business expressed as a percentage of shareholders
equity.
• This ratio measures the busin...

• This ratio provides the percentage of total sales
revenue that the business retains after subtracting the
direct costs...

• This ratio reveals the overall profitability of the business
(before interest and tax have been paid)
Net Profit Margin

• This efficiency ratio reveals how many times a year the business turns over its
assets – convert them into sales
• Not...

• This ratio gives investors an idea of how long it takes
the business to turn its inventory (including goods that
are w...

Accounts Receivable
Turnover (days)
• This ratio focuses on the time it takes for debtors to
pay their accounts. The rat...

Current Ratio
• The ratio is generally used to give an indication of
the businesses ability to pay back its short-term
l...

• This ratio measures the businesses short-term liquidity.
• It tells you whether the business is able to meet its short...

• The gearing ratio looks at the financial leverage of the
business. It compares the proportion of equity vs. debt
that ...

Debt to Equity Ratio = Total Debt
Total Equity
• The debt-to-equity ratio looks at the financial leverage of
the busines...

 Swinburne Guidance: Report Structure
 Marking guide (Rubric) – attached at the end of the
assignment
eLAs will use th...

To Pass:
 Attempt at discussing performance
 Some reference to ratios
 Basic summary included
 Report format mostly ...

For Distinction:
 Comprehensive discussion - show solid understanding of
concepts and ratios
 Good use of facts from c...

To Fail:
 Inadequate discussion – merely describing results
 Limited explanation
 Little or no reference to ratios
Ma...

You can also post your questions on
Black board.
Good luck!
QUESTIONS?
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Slbc100 assignment 1 ratio analysis - collaborate session - tp1 2014 (1)

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Slbc100 assignment 1 ratio analysis - collaborate session - tp1 2014 (1)

  1. 1. Collaborate Session May 2014
  2. 2.   Due date: 9 am (AEST) Monday 19 May 2014  Weighting: 25% Assignment Ratio Analysis
  3. 3.  Ratio Computation  Calculate the ratios for 2010, 2011 and 2012:  Ratios are on page 2 of the assignment (see next slide)  Include your ratio calculations in the appendix  Group the ratios under the headings profitability, efficiency, liquidity and capital structure  Calculate the ratios to 2 decimal points  IMPORTANT: Show the formula for each ratio. e.g. Accounts payable turnover (days) = (Average Accounts Payable/Credit Purchases) x 365  Use average figures where required – not year end figures Requirements
  4. 4.  Ratios to be calculated: 1) Return on assets 2) Return on equity 3) Gross profit margin 4) Net profit margin 5) Asset turnover ratio (times) 6) Inventory turnover (days) 7) Accounts receivable turnover (days) 8) Current ratio 9) Quick asset ratio 10) Gearing ratio 11) Debt to Equity Requirements
  5. 5. Discussion  What each ratio tells you about the business  Whether the ratio is favourable or unfavourable  Whether the ratio is improving or declining over the years  Whether the finance will be granted or not, with reasons -discuss how the ratios influence the bank’s decision to approve or decline the finance application  Discuss in general terms how the company can meet the payment obligations if the finance application is approved Requirements
  6. 6.   Present in business report format  Reports should be single spaced, with main headings in bold type  Executive Summary  Introduction  Body – analysis, interpretation, evaluation, discussion  Conclusion and/or recommendations Report Structure
  7. 7.   750-1000 words (+/- 10 %)  Excludes:  Executive Summary  Graphs, Tables, Diagrams, Figures  Appendices  Table of Contents  Title page Word Limit
  8. 8.   Follow submission requirements  Word limit: 750 – 1000 words (+/- 10%)  Make sure you read and follow all the instructions carefully, for example:  Swinburne now uses Turnitin to provide personalised feedback and allows you to check the originality of your assessments.  Instructions on how to use this are found under the Assessment tab, or copy this link into your browser. To Avoid Penalties
  9. 9.   Requires more than mere ratio calculation  Emphasis on interpretation, evaluation, discussion & reporting to show us your understanding  Reports will be assessed for clarity of expression, correct grammar and correct spelling Note:
  10. 10.   Concise - short sentences that get right to the point  Headings and sub-headings – improve readability  Tables, graphs – to visually present data & findings  Selective underlining/highlighting for emphasis  Follow the guidelines on the marking rubric and stick to what is being asked. Include additional information only if relevant. Tips
  11. 11.  SOME DETAILS ON RATIOS YOU ARE REQUIRED TO COMPUTE RATIOS
  12. 12.  •This ratio indicates the amount of sales generated for every dollar's worth of assets the business has. •It is an indication of how efficiently the business is at using its assets in generating sales or revenue – generally, the higher the number the better. Return on Assets
  13. 13.  • The profit generated by the business expressed as a percentage of shareholders equity. • This ratio measures the businesses profitability - how much profit has been made with the money shareholders have invested. • Ordinary Share Capital = Issued Capital • Retained Earnings = Reserves • TIP – The average will be the average of the whole year ((so beginning balance which is end balance from previous year + ending balance of the year) / 2 ) Return on Equity
  14. 14.  • This ratio provides the percentage of total sales revenue that the business retains after subtracting the direct costs associated with producing the goods and services sold by the business. The higher the percentage, the more the business keeps for each dollar of sales to service its other expenses and obligations. Gross Profit Margin
  15. 15.  • This ratio reveals the overall profitability of the business (before interest and tax have been paid) Net Profit Margin
  16. 16.  • This efficiency ratio reveals how many times a year the business turns over its assets – convert them into sales • Note - this ratio is explained on p306 of your textbook, but not very clearly. • It is different to the Asset TO Period which is Av Total Assets / Sales x 365 • We will provide a worked example in excel which shows the difference but they work in reverse to each other – if assets increase the Asset TO Period increases, and the Asset TO Times decreases Asset Turnover Ratio Times Asset Turnover Times = Sales Average Total Assets
  17. 17.  • This ratio gives investors an idea of how long it takes the business to turn its inventory (including goods that are work in progress, if applicable) into sales. Generally, the lower (shorter) the ratio the better, but it is important to note that the average ratio varies from one industry to another. Inventory Turnover Period
  18. 18.  Accounts Receivable Turnover (days) • This ratio focuses on the time it takes for debtors to pay their accounts. The ratio indicates whether debtors are being allowed excessive credit. A high figure (more than the industry average) may suggest that you have problems with your debt collection procedures or the financial position of major customers. This ratio is important to businesses as efficient and timely collection of customer debts is a vital part of cash flow management.
  19. 19.  Current Ratio • The ratio is generally used to give an indication of the businesses ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables).
  20. 20.  • This ratio measures the businesses short-term liquidity. • It tells you whether the business is able to meet its short-term obligations using its most liquid assets. The higher the quick ratio, the better the position of the business. • This is a stronger measure of liquidity compared to the current ratio as inventory can be harder to sell/convert to cash. Quick Asset Ratio
  21. 21.  • The gearing ratio looks at the financial leverage of the business. It compares the proportion of equity vs. debt that the business is using to finance its assets. • A high ratio often indicates that the business has been aggressive in financing growth via debt. This can be an issue due to interest expenses, especially in volatile economic times. Gearing Ratio
  22. 22.  Debt to Equity Ratio = Total Debt Total Equity • The debt-to-equity ratio looks at the financial leverage of the business. It answers the questions, what proportion of the businesses assets has been funded via debt? • A high debt/equity ratio often indicates that the business has been aggressive in financing growth via debt. This can be an issue due to interest expenses, especially in volatile economic times. Debt to Equity Ratio
  23. 23.   Swinburne Guidance: Report Structure  Marking guide (Rubric) – attached at the end of the assignment eLAs will use this to grade assignment  Example report Actual student report from previous period (different scenario) Additional resources
  24. 24.  To Pass:  Attempt at discussing performance  Some reference to ratios  Basic summary included  Report format mostly followed Marking Guide
  25. 25.  For Distinction:  Comprehensive discussion - show solid understanding of concepts and ratios  Good use of facts from company information to support findings  Correct report format  Well written summary – clear and concise  Concise clear writing style  Excellent presentation – layout; use of graphs, etc.; easy to read.  Include additional info (relevant)  Suggest other helpful information for more comprehensive complete analysis Marking Guide
  26. 26.  To Fail:  Inadequate discussion – merely describing results  Limited explanation  Little or no reference to ratios Marking Guide
  27. 27.  You can also post your questions on Black board. Good luck! QUESTIONS?

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