![18.06.2024 15
Calculations:
20.4 = R32 / [(R273 + R209) / 2]
x 100% = 13.28%
20.3 = R56 / [(R209 + R161) / 2]
x 100% = 30.27%
20.2 = R94 / [(R161 + R127) / 2]
x 100% = 65.28%](https://image.slidesharecdn.com/7-250819075246-5163b15f/75/7-FINANCE-FOR-NON-FINANCIAL-MANAGERS-19-08-2025-pptx-15-2048.jpg)
Uploaded byAlison Humphries-Engelbrecht
7. FINANCE FOR NON-FINANCIAL MANAGERS.19.08.2025.pptx
Analysing and interpreting financials. Profitability and solvency ratios. Mark up % vs Profit Margin %
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7. FINANCE FOR NON-FINANCIAL MANAGERS.19.08.2025.pptx
- 1. FINANCE FOR NON- FINANCIALMANAGERS 18.08.2025
- 2. AGENDA FOR THIS MORNING ANDFRIDAY • Recap of Financial Statements. • This morning • Liquidity ratios • Profitability ratios • Solvency ratio • Friday • Asset Management ratios 2
- 3. FINANCIALS BALANCE SHEET/ STATEMENT OFFINANCIAL POSITION Overview the financial status of your business at a specific date. Assets = Liabilities + Capital (Owner’s Equity) LIQUIDITY RATIOS • Current Ratio • Quick (Acid Test) Ratio • Cash Ratio • These are used to measure the ability of a business to pay off its short-term labilities. INCOME STATEMENT Overview the income and expenses for a particular period. Usually a financial year. (March to February) Will determine profit/loss (gross and net). CASH FLOW STATEMENTS Overview of the ways cash (in your bank account and physical cash) has changed during a particular period of time. Can be done monthly as a means of cash control. 18.06.2024 3
- 4. PROFITABILITY RATIOS 18.06.2024 4 Profitabilityratios assess a business’s ability to earn profits from its sales or operations, balance sheet assets and equity provided by the shareholders (owners). Profitability ratios indicate how efficiently a company generates profit and value for its shareholders (owners). Profitability ratios include margin ratios and return ratios.
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- 7. PITCH DECK 7 •Aclinic buys a box of vaccines for R1,200 (cost). •The clinic charges patients R1,800 (selling price) for that box. •Profit = R600. •Markup % = 50% (600 ÷ 1,200). •Gross Margin % = 33.3% (600 ÷ 1,800
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- 9. 18.06.2024 9 Calculations: 20.4 =R110 / R390 x 100% = 28.21% 20.3 = R133 / R453 x 100% = 29.36% 20.2 = R164 / R490 x 100% = 33.47% 20.1 = R175 / R526 x 100% = 33.27%
- 10. 18.06.2024 10 Calculations: 20.4 =R32 / R390 x 100% = 8.21% 20.3 = R56 / R453 x 100% = 12.36% 20.2 = R94 / R490 x 100% = 19.18% 20.1 = R104 / R526 x 100% = 19.77%
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- 12. PITCH DECK 12 Financialdefinition: ROA measures how efficiently a business uses its assets to generate profit. It answers the question: “For every rand of equipment, buildings, and resources we own, how much profit are we able to generate?” Medical Example – Hospital Equipment Efficiency •Imagine a hospital with an MRI machine. •If the MRI is used regularly, scheduled efficiently, and diagnoses many patients (who are billed correctly), the machine generates good returns for the hospital. •But if the same expensive MRI machine sits unused most of the time, the hospital’s “return” on that asset is very low. 👉 Just like ROA: the more effectively you use assets (machines, buildings, staff time), the higher the return. EXAMPLE Medical Analogy 3 – Patient’s Vital Signs •In medicine, doctors look at vital signs (blood pressure, pulse, oxygen levels) to see if a patient’s body is using resources (like oxygen and blood) efficiently. •ROA is like a vital sign for a business — it shows whether the company is using its resources (assets) efficiently to generate profit. •A healthy patient = good oxygen use. •A healthy company = good asset use (higher ROA).
- 13. 18.06.2024 13 Calculations: 20.4 =R32 / R690 = 4.63% 20.3 = R56 / R657 = 8.52% 20.2 = R94 / R656 = 14.33% 20.1 = R104 / R667 = 15.59%
- 14. 18.06.2024 14 (Average over2 years)
- 15. 18.06.2024 15 Calculations: 20.4 =R32 / [(R273 + R209) / 2] x 100% = 13.28% 20.3 = R56 / [(R209 + R161) / 2] x 100% = 30.27% 20.2 = R94 / [(R161 + R127) / 2] x 100% = 65.28%
- 16. 18.06.20245 16 Solvency isthe ability of a company to meet its long-term debts and financial obligations. SOLVENCY RATIO
- 17. 18.06.2024 17 Solvency ratioshows whether an organisation (like a clinic or hospital) can meet its long-term debts. •Solvency Ratio = Total Assets/Total Liabilities •If the ratio is greater than 1 the organisation has → more assets than debts = financially healthy. •If the ratio is less than 1 the organisation owes → more than it owns = financial risk. Medical Example (for infographic): •A private clinic owns assets worth R5,000,000 (building, medical equipment, ambulances). •Its long-term debts/liabilities (bank loan + creditors) = R2,500,000. •Solvency Ratio = 2,500,000/5,000,000= 2 •This means the clinic has R2 of assets for every R1 of debt solvent and stable. →
- 18. 18.06.2024 18 Calculations: 20.4 =R690 : (R375 + R42) = 1.65 : 1 20.3 = R657 : (R413 + R35) = 1.47 : 1 20.2 = R656 : (R450 + R45) = 1.33 : 1 20.1 = R667 : R478 + R62) = 1.24 : 1
- 19. WRAP UP FORTODAY Financial ratios and percentages enable the entrepreneur to make sound decisions based on historical facts. This information is to be used in conjunction with sound management, controls and records. 18.06.2024 19
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Editor's Notes
- #4 Profitability can be equated to the life blood of a business. Like blood and oxygen are important for health, so is profitability healthy for a business. This is usually expressed as a percentage rather than a ratio. Measuring current and past profitability and projecting future profitability is very important.
- #6 Markup percentage is the percentage difference between the actual cost and the selling price, while gross margin percentage is the percentage difference between the selling price and the profit.
- #9 The Gross Profit Margin measures the business’s ability to generate gross profit, which is also a measure of the financial health of the business. This is done by determining the percentage of profit left after deducting the cost of sales from total sales. (Gross Profit). It is therefore indicative of a business’s ability to sell products cost-effectively. The decline in this ratio should be a concern for the business. In 20.3 and especially 20.4, there was a significant drop in this percentage. Reasons for this decline could include stolen, lost or obsolete inventory, clearance sales, etc. Calculations: 20.4 = R110 / R390 x 100% = 28.21% 20.3 = R133 / R453 x 100% = 29.36% 20.2 = R164 / R490 x 100% = 33.47% 20.1 = R175 / R526 x 100% = 33.27%
- #10 There has been a continued decrease in profitability. It seems as if the decrease in net margin was mainly due to the factors causing the decline in gross margins. The rise in operating expenditure was not exorbitant, and it could be argued that mere inflationary pressures caused the increases. Calculations: 20.4 = R32 / R390 x 100% = 8.21% 20.3 = R56 / R453 x 100% = 12.36% 20.2 = R94 / R490 x 100% = 19.18% 20.1 = R104 / R526 x 100% = 19.77%
- #11 Return on assets (ROA) is a financial ratio that measures how efficiently a company uses its assets to generate profit. It's calculated by dividing a company's net income by its total assets and expressed as a percentage. A higher ROA indicates that a company is more efficient at turning its investments into profit. For example, if a company's ROA is 7.5%, it means the company earns seven and a half cents per rand in assets.
- #13 Return on assets (ROA) is a financial ratio that measures how efficiently a company uses its assets to generate profit. It's calculated by dividing a company's net income by its total assets and expressed as a percentage. A higher ROA indicates that a company is more efficient at turning its investments into profit. For example, if a company's ROA is 7.5%, it means the company earns seven and a half cents per rand in assets.
- #14 Return on assets (ROA) is a financial ratio that measures how efficiently a company uses its assets to generate profit. It's calculated by dividing a company's net income by its total assets and expressed as a percentage. A higher ROA indicates that a company is more efficient at turning its investments into profit. For example, if a company's ROA is 7.5%, it means the company earns seven and a half cents per rand in assets.
- #15 The return on equity financing has deteriorated considerably between 20.2 and 20.4, largely due to declining profits. This decrease in profits was caused by a decrease in efficiency, which is evident in the decrease in gross profits and the increase in operating expenses. Calculations: 20.4 = R32 / [(R273 + R209) / 2] x 100% = 13.28% 20.3 = R56 / [(R209 + R161) / 2] x 100% = 30.27% 20.2 = R94 / [(R161 + R127) / 2] x 100% = 65.28%
- #16 The solvency ratio measures the ability of the entity to settle all its liabilities. It indicates whether the entity has sufficient assets to settle all its liabilities. If assets are greater than liabilities, the business is solvent: this means that there is a low probability that the entity will default from its debt obligations. If liabilities exceed assets, the business is insolvent: this means that there is a high probability that the entity will default from its debt obligations.
- #17 A solvency ratio, also known as a leverage ratio, is a financial metric that measures a company's ability to pay off its debts while remaining operational. It's a key indicator of a company's long-term financial health and can help predict its future potential. Solvency ratios are often used by lenders, investors, and suppliers to evaluate a company's creditworthiness and determine how profitable a relationship might be.
- #18 The solvency ratio has improved steadily since 20.2. This should be viewed as a positive sign for the firm’s solvency. This increase is due to an increase in current assets – particularly inventory and trade receivables – and a decrease in non-current liabilities. As the ratio is greater than 1:1, this means that there is a low probability that the firm will default from its debt obligations. 20.4 = R690 : (R375 + R42) = 1.65 : 1 20.3 = R657 : (R413 + R35) = 1.47 : 1 20.2 = R656 : (R450 + R45) = 1.33 : 1 20.1 = R667 : R478 + R62) = 1.24 : 1
- #19 Financial ratios can help decision-makers understand a company's financial health and make informed choices. They are a useful management tool that measure the relationship between two or more components of financial statements. By analyzing and interpreting these ratios, decision-makers can: Identify strengths and weaknesses Ratios can help managers pinpoint areas of a company's financial performance, profitability, liquidity, solvency, and efficiency. For example, a declining liquidity ratio could indicate worsening short-term solvency. Compare performance Ratios can help companies compare their performance to similar businesses in their industry or to historical data. For example, comparing return on assets between companies can help determine which company is making the most efficient use of its assets. Make data-driven decisions Ratios can help investors, analysts, and shareholders make informed investment decisions.
- #20 https://forms.gle/f4JwB4ph1hEGQXeo6