The document provides a comparative financial evaluation of O'Donnell & Associates for internal management purposes. It analyzes the company's liquidity, profits/profit margins, turnover, borrowing, assets, and employees based on financial data over the past 12 months. Overall the company has strong profitability and liquidity, though profit margins have declined slightly which could become a concern if not addressed by better expense management going forward.
This document discusses various financial ratios used to analyze customers' financial statements. It provides definitions and formulas for liquidity ratios like current ratio and quick ratio, profitability ratios like net profit margin and return on assets, financial leverage ratios like debt to equity, and efficiency ratios like inventory turnover. These ratios are used to evaluate different aspects of a company's financial health and operations, such as liquidity, profitability, debt usage, and working capital management.
Financial ratios can help analyze a business's financial health by comparing numbers from financial statements. They measure aspects like liquidity, safety, profitability, and efficiency. Some common ratios include the current ratio and quick ratio for liquidity, the debt-to-equity ratio for safety, gross profit margin and net profit margin for profitability, and inventory turnover for efficiency. Comparing ratios to industry averages and tracking them over time provides insight into a business's strengths and weaknesses.
- The document discusses creating or protecting value for clients in business transactions through consideration of the balance sheet. Specifically, it discusses enterprise value versus equity value, cash free/debt free offers, definitions of debt, and positioning these balance sheet factors in early negotiations.
- Key areas that can impact value and require interpretation are surplus assets, free cash, debt, working capital levels, and whether items like corporation tax are considered debt.
- Being prepared at the outset to include discussions of balance sheet factors can help position a client's interests when other parties may focus more on profits alone.
This document provides information on financial management concepts including:
- The differences between wealth maximization and profit maximization, and the relationship between finance and accounting.
- Factors that affect capital structure such as leverage, cost of capital, cash flow projections, and dilution of control.
- The capital budgeting process including project screening, market appraisal, technical appraisal, economic appraisal, and financial appraisal.
- Concepts of working capital such as gross working capital, net working capital, permanent working capital, and temporary working capital. Determinants of working capital such as nature of business, operating cycle, and growth of the firm are also discussed.
This chapter included, Meaning and concepts of working capital Management , Operational environment for working capital Management and Determinants of working capital
The document discusses how to analyze balance sheets and income statements to understand a business's financial objectives and performance, examining assets, liabilities, revenues, expenses, profits, and using financial data for comparisons over time and between businesses. It also notes some strengths and limitations of relying solely on financial statements to judge a business.
This document discusses various financial ratios used to analyze customers' financial statements. It provides definitions and formulas for liquidity ratios like current ratio and quick ratio, profitability ratios like net profit margin and return on assets, financial leverage ratios like debt to equity, and efficiency ratios like inventory turnover. These ratios are used to evaluate different aspects of a company's financial health and operations, such as liquidity, profitability, debt usage, and working capital management.
Financial ratios can help analyze a business's financial health by comparing numbers from financial statements. They measure aspects like liquidity, safety, profitability, and efficiency. Some common ratios include the current ratio and quick ratio for liquidity, the debt-to-equity ratio for safety, gross profit margin and net profit margin for profitability, and inventory turnover for efficiency. Comparing ratios to industry averages and tracking them over time provides insight into a business's strengths and weaknesses.
- The document discusses creating or protecting value for clients in business transactions through consideration of the balance sheet. Specifically, it discusses enterprise value versus equity value, cash free/debt free offers, definitions of debt, and positioning these balance sheet factors in early negotiations.
- Key areas that can impact value and require interpretation are surplus assets, free cash, debt, working capital levels, and whether items like corporation tax are considered debt.
- Being prepared at the outset to include discussions of balance sheet factors can help position a client's interests when other parties may focus more on profits alone.
This document provides information on financial management concepts including:
- The differences between wealth maximization and profit maximization, and the relationship between finance and accounting.
- Factors that affect capital structure such as leverage, cost of capital, cash flow projections, and dilution of control.
- The capital budgeting process including project screening, market appraisal, technical appraisal, economic appraisal, and financial appraisal.
- Concepts of working capital such as gross working capital, net working capital, permanent working capital, and temporary working capital. Determinants of working capital such as nature of business, operating cycle, and growth of the firm are also discussed.
This chapter included, Meaning and concepts of working capital Management , Operational environment for working capital Management and Determinants of working capital
The document discusses how to analyze balance sheets and income statements to understand a business's financial objectives and performance, examining assets, liabilities, revenues, expenses, profits, and using financial data for comparisons over time and between businesses. It also notes some strengths and limitations of relying solely on financial statements to judge a business.
Valuation Discounts for Holding Company: A Business Valuation ArticleCorporate Professionals
A holding company owns investments in other companies but has no business operations itself. Valuing a holding company is complex as its value is not simply the sum of its subsidiaries' values. Three common discounts apply: (1) liquidation discount for taxes on capital gains from selling subsidiaries, (2) lack of control discount as control level affects value, and (3) lack of marketability discount as restrictions exist on transferring subsidiary assets. Empirical research finds holding companies often trade at 40-60% discounts to net asset value. However, adjustments should be made depending on dividends received and expected future scenarios.
Working Capital Management: Meaning of Working Capital, its components & types, Operating Cycle, Factors affecting working capital, Estimation of working capital requirement. (Total Cost Method & Cash Cost Method)
This document discusses working capital management. It defines working capital as the funds used in a business for day-to-day operations, and explains that adequate working capital is important for efficiency and survival. It distinguishes between gross and net working capital, and discusses factors that influence working capital requirements like nature of business and credit terms. The document also outlines methods for estimating working capital needs based on current assets, operating cycles, and cash costs.
Working capital refers to the capital required for financing short-term assets such as cash, inventory, and accounts receivable. It is also known as revolving or circulating capital. There are different types of working capital like gross working capital, net working capital, permanent working capital, and temporary working capital. Management of working capital involves maintaining optimal levels of current assets and current liabilities to ensure sufficient liquidity and an efficient balance between risk and profitability.
Working capital management ppt @ bec doms bagalkot mbaBabasab Patil
This document discusses working capital, which is defined as current assets minus current liabilities. It measures a company's liquid assets available to operate its business. The document outlines different components of working capital like inventory, accounts receivable, cash, and current liabilities like accounts payable. It also discusses the importance of managing working capital to ensure sufficient cash flow and meeting short-term obligations. Different approaches to determining a firm's working capital needs are discussed, including industry norms, economic modeling, and strategic choices based on a firm's specific business practices and goals.
Working capital management is important for infrastructure firms due to their capital intensive nature and long project cycles. The document analyzes various sources of working capital financing used by infrastructure companies, including cash credit, overdraft facilities, letter of credit, bank guarantees, and hypothecation purchase finance. It also discusses corporate term loans and how interest rates are determined based on company ratings. Factoring, letters of credit, and bank guarantees are suitable for specific transactions, while hypothecation financing provides equipment funding through a down payment structure.
Introduction
Working capital typically means the firm’s holding of current or short-term assets such as cash, receivables, inventory and marketable securities.
These items are also referred to as circulating capital
Corporate executives devote a considerable amount of attention to the management of working capital
Definition
Working Capital refers to that part of the firm’s capital, which is required for financing short-term or current assets such a cash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast and are constantly converted into cash and this cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital.
Nature Of Working Capital
Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelations that exist between them.
Current assets refer to those assets which in the ordinary course of business can be, or will be, converted into cash within one year without undergoing a diminution in value and without disrupting the operations of the firm.
Examples- cash, marketable securities, accounts receivable and inventory.
Current liabilities are those liabilities which are intended, at their inception, to be paid in the ordinary course of business, within a year, out of the current assets or the earnings of the concern.
Examples- accounts payable, bills payable, bank overdraft and outstanding expenses.
The document discusses working capital, which is the cash needed for day-to-day business operations and is calculated as current assets minus current liabilities; it also covers liquidity ratios like the current ratio and acid test ratio to measure a business's ability to pay debts, and risks like overtrading that can occur if too much business is taken on without sufficient working capital. Managing working capital effectively through inventory, debtors, creditors and cash flow is important for business success.
Invoice financing allows businesses to raise cash against the value of unpaid invoices by having an invoice finance provider pay a portion of the invoice immediately, usually within 24 hours. This gives businesses greater access to working capital and cash flow. Over 46,000 UK and Irish businesses have used invoice financing in the past year, with over £15 billion advanced by the industry. Invoice financing can help businesses fund growth by providing capital to expand operations without heavy reliance on bank loans or overdrafts.
Management of Working Capital- Britannia Industries Ltd.Nikita Jangid
The document discusses working capital and its management. It defines working capital as the capital required for financing day-to-day business operations. Shortage of working capital can cause business failures while sufficient working capital is important for business success and liquidity. The document also discusses different types of working capital like permanent working capital and temporary working capital. It outlines the goals of working capital management as ensuring sufficient cash flow and balancing current assets and liabilities. Key factors that determine working capital requirements include the nature of industry, sales volume, inventory and receivables turnover, and the production cycle.
Best in Class Working Capital Management - Best Practices for A/R, AP and Inv...Proformative, Inc.
This document discusses working capital management and survey findings. It summarizes a 2012 working capital survey that found the performance gap between the US and Europe narrowed significantly, with Europe improving more than the US. The gap between large and small companies also narrowed. Leading performers made strides through supply chain optimization, payment term management, and risk management. Poorer performers focused more on short-term fixes than sustainable changes. The document also summarizes variations in working capital metrics across industries and regions.
This document discusses working capital, which refers to the capital required for financing short-term operations like raw materials, wages, expenses. It is important for businesses to maintain adequate working capital to pay debts and support daily operations. The document outlines different types of working capital, sources of funding, and how ratios can assess working capital management efficiency. Maintaining the right level of working capital is essential for business liquidity, profitability and reducing risk of insolvency.
This document discusses ratio analysis, which involves interpreting numerical relationships based on financial statements to evaluate a company's performance. Ratios are classified into liquidity ratios, which assess short-term solvency, and solvency ratios, which evaluate long-term financial position. Key liquidity ratios discussed are current ratio, quick ratio, and absolute liquidity ratio. Important solvency ratios mentioned include debt-equity ratio, proprietary ratio, and fixed assets to net worth ratio. The document provides formulas and interpretations for these ratios.
Working capital management involves determining the appropriate level and financing of current assets, such as cash, inventory, and accounts receivable. It aims to balance holding costs of current assets with costs of shortages. Key aspects include calculating net working capital as current assets minus current liabilities, understanding operating cycles involving days of inventory and receivables outstanding, and choosing financing strategies like matching asset and liability maturities or relying more on long-term or short-term funds. The optimal working capital strategy minimizes total relevant costs subject to meeting business needs.
Procurement Benchmarking Survey 2012 Main Report The Power Of Procurementalaindhoe
The findings from the survey indicate that, although most procurement functions have made significant progress in terms of creating value for their organizations, over the past few years, momentum has stagnated somewhat. In large part, this is because much of the ‘low hanging fruit’ has already been harvested in terms of cost savings, leverage and price. In order to enhance the value delivered, Procurement functions will need to stretch to identify broader opportunities and take on a more strategic role.
Working capital management involves managing a firm's current assets and current liabilities. There are different types of working capital policies that determine the relationship between sales levels and current asset levels, such as conservative, moderate, and aggressive policies. Key aspects of working capital management include determining an optimal level of working capital to balance liquidity and profitability, classifying working capital needs as permanent or temporary, and selecting appropriate financing sources using approaches like hedging or matching maturities of financing to asset needs.
This document provides an overview of working capital management. It defines working capital as current assets that can be converted to cash within a year to meet day-to-day operations. Working capital management aims to maximize shareholder wealth by managing sources and uses of working capital. It also discusses key aspects like gross and net working capital, operating cycle, factors that affect working capital needs, approaches to financing working capital, and tools for monitoring and controlling working capital. The document provides definitions and formulas to calculate different working capital metrics and estimates working capital requirements based on various operational factors.
Here are the steps to calculate the working capital requirement:
1. Calculate the daily production:
Previous year's production / 365 days = 60,000 units / 365 days = 164 units
2. Calculate the daily requirement for raw materials, wages and overheads:
Raw Materials: 164 units x 60% of cost per unit = 98 units x Cost per unit
Direct Wages: 164 units x 10% of cost per unit = 16 units x Cost per unit
Overheads: 164 units x 20% of cost per unit = 33 units x Cost per unit
3. Calculate the average holding period in days:
Raw Materials: 2 months x 30 days = 60 days
Work-in-progress
PROJECT ON WORKING CAPITAL MANAGEMENT
Efficient management of working Capital is one of the pre-conditions for the success of an enterprise. To reach optimal working capital management firm manager should control the trade-off between profitability and liquidity accurately. The purpose of this study is to investigate the relationship between working capital management and firm’s profitability.
In this study, we have selected a sample of 5 top notch Electricals firms and taken their financial data for a period of 6 years from 2008 – 2013 and studied the effect of different variables of working capital management including the Cash conversion cycle and Current ratio on the profitability of the firms.
The study shows that there is a negative significant relationship between cash conversion cycle & firm’s profitability and positive relationship between Current Ratio & profitability of firms. This reveals that reducing cash conversion period and increasing the current ratio results into profitability increase. Thus, in purpose to create shareholder value, firm manager should concern on shorten of cash conversion cycle till accomplish optimal level.
Ratio analysis advantages and limitations (Complete Chapter)Syed Mahmood Ali
The aim of this PPT's to provide complete knowledge of Ratio Analysis chapter covering all the formula's for any university student of B.com, M.com, BBA and MBA.
Financial statement analysis involves calculating and interpreting ratios to evaluate a company's financial performance and health. Ratios are categorized into liquidity, asset management, debt management, and profitability ratios. Trend analysis and benchmarking against industry peers are also important. While ratio analysis has limitations, it can provide useful insights when used carefully alongside qualitative factors.
Valuation Discounts for Holding Company: A Business Valuation ArticleCorporate Professionals
A holding company owns investments in other companies but has no business operations itself. Valuing a holding company is complex as its value is not simply the sum of its subsidiaries' values. Three common discounts apply: (1) liquidation discount for taxes on capital gains from selling subsidiaries, (2) lack of control discount as control level affects value, and (3) lack of marketability discount as restrictions exist on transferring subsidiary assets. Empirical research finds holding companies often trade at 40-60% discounts to net asset value. However, adjustments should be made depending on dividends received and expected future scenarios.
Working Capital Management: Meaning of Working Capital, its components & types, Operating Cycle, Factors affecting working capital, Estimation of working capital requirement. (Total Cost Method & Cash Cost Method)
This document discusses working capital management. It defines working capital as the funds used in a business for day-to-day operations, and explains that adequate working capital is important for efficiency and survival. It distinguishes between gross and net working capital, and discusses factors that influence working capital requirements like nature of business and credit terms. The document also outlines methods for estimating working capital needs based on current assets, operating cycles, and cash costs.
Working capital refers to the capital required for financing short-term assets such as cash, inventory, and accounts receivable. It is also known as revolving or circulating capital. There are different types of working capital like gross working capital, net working capital, permanent working capital, and temporary working capital. Management of working capital involves maintaining optimal levels of current assets and current liabilities to ensure sufficient liquidity and an efficient balance between risk and profitability.
Working capital management ppt @ bec doms bagalkot mbaBabasab Patil
This document discusses working capital, which is defined as current assets minus current liabilities. It measures a company's liquid assets available to operate its business. The document outlines different components of working capital like inventory, accounts receivable, cash, and current liabilities like accounts payable. It also discusses the importance of managing working capital to ensure sufficient cash flow and meeting short-term obligations. Different approaches to determining a firm's working capital needs are discussed, including industry norms, economic modeling, and strategic choices based on a firm's specific business practices and goals.
Working capital management is important for infrastructure firms due to their capital intensive nature and long project cycles. The document analyzes various sources of working capital financing used by infrastructure companies, including cash credit, overdraft facilities, letter of credit, bank guarantees, and hypothecation purchase finance. It also discusses corporate term loans and how interest rates are determined based on company ratings. Factoring, letters of credit, and bank guarantees are suitable for specific transactions, while hypothecation financing provides equipment funding through a down payment structure.
Introduction
Working capital typically means the firm’s holding of current or short-term assets such as cash, receivables, inventory and marketable securities.
These items are also referred to as circulating capital
Corporate executives devote a considerable amount of attention to the management of working capital
Definition
Working Capital refers to that part of the firm’s capital, which is required for financing short-term or current assets such a cash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast and are constantly converted into cash and this cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital.
Nature Of Working Capital
Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelations that exist between them.
Current assets refer to those assets which in the ordinary course of business can be, or will be, converted into cash within one year without undergoing a diminution in value and without disrupting the operations of the firm.
Examples- cash, marketable securities, accounts receivable and inventory.
Current liabilities are those liabilities which are intended, at their inception, to be paid in the ordinary course of business, within a year, out of the current assets or the earnings of the concern.
Examples- accounts payable, bills payable, bank overdraft and outstanding expenses.
The document discusses working capital, which is the cash needed for day-to-day business operations and is calculated as current assets minus current liabilities; it also covers liquidity ratios like the current ratio and acid test ratio to measure a business's ability to pay debts, and risks like overtrading that can occur if too much business is taken on without sufficient working capital. Managing working capital effectively through inventory, debtors, creditors and cash flow is important for business success.
Invoice financing allows businesses to raise cash against the value of unpaid invoices by having an invoice finance provider pay a portion of the invoice immediately, usually within 24 hours. This gives businesses greater access to working capital and cash flow. Over 46,000 UK and Irish businesses have used invoice financing in the past year, with over £15 billion advanced by the industry. Invoice financing can help businesses fund growth by providing capital to expand operations without heavy reliance on bank loans or overdrafts.
Management of Working Capital- Britannia Industries Ltd.Nikita Jangid
The document discusses working capital and its management. It defines working capital as the capital required for financing day-to-day business operations. Shortage of working capital can cause business failures while sufficient working capital is important for business success and liquidity. The document also discusses different types of working capital like permanent working capital and temporary working capital. It outlines the goals of working capital management as ensuring sufficient cash flow and balancing current assets and liabilities. Key factors that determine working capital requirements include the nature of industry, sales volume, inventory and receivables turnover, and the production cycle.
Best in Class Working Capital Management - Best Practices for A/R, AP and Inv...Proformative, Inc.
This document discusses working capital management and survey findings. It summarizes a 2012 working capital survey that found the performance gap between the US and Europe narrowed significantly, with Europe improving more than the US. The gap between large and small companies also narrowed. Leading performers made strides through supply chain optimization, payment term management, and risk management. Poorer performers focused more on short-term fixes than sustainable changes. The document also summarizes variations in working capital metrics across industries and regions.
This document discusses working capital, which refers to the capital required for financing short-term operations like raw materials, wages, expenses. It is important for businesses to maintain adequate working capital to pay debts and support daily operations. The document outlines different types of working capital, sources of funding, and how ratios can assess working capital management efficiency. Maintaining the right level of working capital is essential for business liquidity, profitability and reducing risk of insolvency.
This document discusses ratio analysis, which involves interpreting numerical relationships based on financial statements to evaluate a company's performance. Ratios are classified into liquidity ratios, which assess short-term solvency, and solvency ratios, which evaluate long-term financial position. Key liquidity ratios discussed are current ratio, quick ratio, and absolute liquidity ratio. Important solvency ratios mentioned include debt-equity ratio, proprietary ratio, and fixed assets to net worth ratio. The document provides formulas and interpretations for these ratios.
Working capital management involves determining the appropriate level and financing of current assets, such as cash, inventory, and accounts receivable. It aims to balance holding costs of current assets with costs of shortages. Key aspects include calculating net working capital as current assets minus current liabilities, understanding operating cycles involving days of inventory and receivables outstanding, and choosing financing strategies like matching asset and liability maturities or relying more on long-term or short-term funds. The optimal working capital strategy minimizes total relevant costs subject to meeting business needs.
Procurement Benchmarking Survey 2012 Main Report The Power Of Procurementalaindhoe
The findings from the survey indicate that, although most procurement functions have made significant progress in terms of creating value for their organizations, over the past few years, momentum has stagnated somewhat. In large part, this is because much of the ‘low hanging fruit’ has already been harvested in terms of cost savings, leverage and price. In order to enhance the value delivered, Procurement functions will need to stretch to identify broader opportunities and take on a more strategic role.
Working capital management involves managing a firm's current assets and current liabilities. There are different types of working capital policies that determine the relationship between sales levels and current asset levels, such as conservative, moderate, and aggressive policies. Key aspects of working capital management include determining an optimal level of working capital to balance liquidity and profitability, classifying working capital needs as permanent or temporary, and selecting appropriate financing sources using approaches like hedging or matching maturities of financing to asset needs.
This document provides an overview of working capital management. It defines working capital as current assets that can be converted to cash within a year to meet day-to-day operations. Working capital management aims to maximize shareholder wealth by managing sources and uses of working capital. It also discusses key aspects like gross and net working capital, operating cycle, factors that affect working capital needs, approaches to financing working capital, and tools for monitoring and controlling working capital. The document provides definitions and formulas to calculate different working capital metrics and estimates working capital requirements based on various operational factors.
Here are the steps to calculate the working capital requirement:
1. Calculate the daily production:
Previous year's production / 365 days = 60,000 units / 365 days = 164 units
2. Calculate the daily requirement for raw materials, wages and overheads:
Raw Materials: 164 units x 60% of cost per unit = 98 units x Cost per unit
Direct Wages: 164 units x 10% of cost per unit = 16 units x Cost per unit
Overheads: 164 units x 20% of cost per unit = 33 units x Cost per unit
3. Calculate the average holding period in days:
Raw Materials: 2 months x 30 days = 60 days
Work-in-progress
PROJECT ON WORKING CAPITAL MANAGEMENT
Efficient management of working Capital is one of the pre-conditions for the success of an enterprise. To reach optimal working capital management firm manager should control the trade-off between profitability and liquidity accurately. The purpose of this study is to investigate the relationship between working capital management and firm’s profitability.
In this study, we have selected a sample of 5 top notch Electricals firms and taken their financial data for a period of 6 years from 2008 – 2013 and studied the effect of different variables of working capital management including the Cash conversion cycle and Current ratio on the profitability of the firms.
The study shows that there is a negative significant relationship between cash conversion cycle & firm’s profitability and positive relationship between Current Ratio & profitability of firms. This reveals that reducing cash conversion period and increasing the current ratio results into profitability increase. Thus, in purpose to create shareholder value, firm manager should concern on shorten of cash conversion cycle till accomplish optimal level.
Ratio analysis advantages and limitations (Complete Chapter)Syed Mahmood Ali
The aim of this PPT's to provide complete knowledge of Ratio Analysis chapter covering all the formula's for any university student of B.com, M.com, BBA and MBA.
Financial statement analysis involves calculating and interpreting ratios to evaluate a company's financial performance and health. Ratios are categorized into liquidity, asset management, debt management, and profitability ratios. Trend analysis and benchmarking against industry peers are also important. While ratio analysis has limitations, it can provide useful insights when used carefully alongside qualitative factors.
- The document analyzes various financial ratios for Virat Industries Ltd, an Indian company that produces cotton socks.
- It calculates liquidity ratios like current ratio and acid-test ratio to assess the company's ability to meet short-term obligations. It also calculates leverage ratios like debt-equity ratio to examine the firm's capital structure.
- The document concludes that the company's current ratio and cash ratio indicate a marginally satisfactory liquidity position. It also finds that the debt-equity ratio has been continuously decreasing, showing efforts to reduce debt levels.
This document provides a project report on the financial statement analysis of Oberoi Realty, an Indian real estate developer. It includes an introduction to the company, objectives and scope of the analysis, calculations of various financial ratios to analyze liquidity, leverage, turnover and profitability. These ratios are used to understand the financial health and performance of the company. The report also includes the financial statements and an analysis of the company's position based on the ratios.
Ratios and Formulas in Customer Financial AnalysisFinancial stat.docxcatheryncouper
Ratios and Formulas in Customer Financial Analysis
Financial statement analysis is a judgmental process. One of the primary objectives is identification of major changes in trends, and relationships and the investigation of the reasons underlying those changes. The judgment process can be improved by experience and the use of analytical tools. Probably the most widely used financial analysis technique is ratio analysis, the analysis of relationships between two or more line items on the financial statement. Financial ratios are usually expressed in percentage or times. Generally, financial ratios are calculated for the purpose of evaluating aspects of a company's operations and fall into the following categories:
· Liquidity ratios measure a firm's ability to meet its current obligations.
· Profitability ratios measure management's ability to control expenses and to earn a return on the resources committed to the business.
· Leverage ratios measure the degree of protection of suppliers of long-term funds and can also aid in judging a firm's ability to raise additional debt and its capacity to pay its liabilities on time.
· Efficiency, activity or turnover ratios provide information about management's ability to control expenses and to earn a return on the resources committed to the business.
A ratio can be computed from any pair of numbers. Given the large quantity of variables included in financial statements, a very long list of meaningful ratios can be derived. A standard list of ratios or standard computation of them does not exist. The following ratio presentation includes ratios that are most often used when evaluating the credit worthiness of a customer. Ratio analysis becomes a very personal or company driven procedure. Analysts are drawn to and use the ones they are comfortable with and understand.
1. Liquidity Ratios
Working Capital
Working capital compares current assets to current liabilities, and serves as the liquid reserve available to satisfy contingencies and uncertainties. A high working capital balance is mandated if the entity is unable to borrow on short notice. The ratio indicates the short-term solvency of a business and in determining if a firm can pay its current liabilities when due.
Formula
Current Assets - Current Liabilities
Acid Test or Quick Ratio
A measurement of the liquidity position of the business. The quick ratio compares the cash plus cash equivalents and accounts receivable to the current liabilities. The primary difference between the current ratio and the quick ratio is the quick ratio does not include inventory and prepaid expenses in the calculation. Consequently, a business's quick ratio will be lower than its current ratio. It is a stringent test of liquidity.
Formula
Cash + Marketable Securities + Accounts Receivable
Current Liabilities
Current Ratio
provides an indication of the liquidity of the business by comparing the amount of current assets to current liabilities. A business's curren ...
Ratios and formulas are important analytical tools for evaluating a company's financial statements. Ratio analysis involves calculating relationships between financial data to assess aspects of a company's operations, such as liquidity, profitability, leverage, efficiency and creditworthiness. Common financial ratios are grouped into categories like liquidity ratios, which measure ability to meet current obligations, and profitability ratios, which evaluate expenses and returns. A standard list of ratios does not exist, as analysts choose those most relevant and understandable for the situation.
Financial analysis for juhayna & domty co . graduation project zagzig uni...Eslam Fathi
Financial Analysis is the process of selecting, evaluating, and identifying the financial
strength and weaknesses of the firm by properly establishing relationship between
items of financial statements. Firms, bank, loan officers and business owners all use
Financial analysis to learn more about a company’s current financial health as well as its
potential.
The document discusses ratio analysis, which involves calculating and interpreting various financial ratios to evaluate aspects of a company's performance and financial position. It defines key ratios including liquidity ratios, activity ratios, profitability ratios, and leverage ratios. It provides formulas and examples for specific ratios like current ratio, inventory turnover, debt-to-equity ratio, and return on equity. The purpose of ratio analysis is to help assess a company's liquidity, profitability, financial stability, and management quality.
Ratios and formulas in customer financial analysisNajib Baig
The document provides an overview of various financial ratios used in analyzing customer financial statements. It discusses liquidity ratios, profitability ratios, leverage ratios, and efficiency ratios. For each type of ratio, it provides the calculation formulas and explains what each ratio measures. The ratios can be used to evaluate aspects of a company's operations, such as its ability to meet current obligations, generate profits, utilize debt, and manage assets and expenses.
The document discusses various types of ratios used to evaluate companies, including efficiency ratios, liquidity ratios, leverage ratios, and profitability ratios. Efficiency ratios measure how effectively a company uses its assets. Liquidity ratios evaluate a company's ability to meet short-term obligations. Leverage ratios assess how much debt a company has relative to equity. Profitability ratios provide information on a company's margins and returns. Comparing ratios over time and across peers can provide insights into a company's performance and financial health.
Ratio AnalysisFinancial ratios can be used to examine various as.docxcatheryncouper
Ratio Analysis
Financial ratios can be used to examine various aspects of the financial position and performance of a business and are widely used for planning and control purposes.
They can be used to evaluate the financial health of a business and can be utilised by management in a wide variety of decisions involving such areas as profit planning, pricing, working-capital management, financial structure and dividend policy.
Ratio analysis provides a fairly simplistic method of examining the financial condition of a business.
A ratio expresses the relation of one figure appearing in the financial statements to some other figure appearing there.
Ratios enable comparison between businesses.
Differences may exist between businesses in the scale of operations making comparison via the profits generated unreliable.
Ratios can eliminate this uncertainty.
Other than comparison with other businesses, it is also a valuable tool in analysing the performance of one business over time.
However useful ratios are not without their problems.
Figures calculated through ratio analysis can highlight the financial strengths and weaknesses of a business but they cannot, by themselves, explain why certain strengths or weaknesses exist or why certain changes have occurred.
Only detailed investigation will reveal these underlying reasons. Ratios must, therefore, be seen as a ‘starting point’.
Financial ratio classification
The following ratios are considered the more important for decision-making purposes:
Ratios can be grouped into certain categories, each of which reflects a particular aspect of financial performance or position.
The following broad categories provide a useful basis for explaining the nature of the financial ratios to be dealt with.
Profitability.Businesses come into being with the primary purpose of creating wealth for the owners. Profitability ratios provide an insight to the degree of success in achieving this purpose. They express the profits made in relation to other key figures in the financial statements or to some business resource.
Efficiency.Ratios may be used to measure the efficiency with which certain resource have been utilised within the business. These ratios are also referred to as active ratios.
Liquidity.It is vital to the survival of a business that there be sufficient liquid resources available to meet maturing obligations. Certain ratios may be calculated that examines the relationship between liquid resources held and creditors due for payment in the near future.
Gearing.This is the relationship between the amount financed by the owners of the business and the amount contributed by outsiders, which has an important effect on the degree of risk associated with a business. Gearing is then something that managers must consider when making financing decisions.
Investment.Certain ratios are concerned with assessing the returns and performance of shares held in a particular business.
Profitabi ...
Presents the ideal opportunity to learn and grow by doing a yearly business performace review. Now is the time to reflect, rethink, reread and redesign before the start of a new year.
This document provides definitions and explanations of 14 key business ratios that are used to analyze a company's financial health and performance. The ratios are divided into categories of solvency ratios, profitability ratios, and efficiency ratios. Some of the ratios discussed include the quick ratio, current ratio, return on assets, return on net worth, inventory turnover, and collection period. These ratios measure factors such as a company's liquidity, profit margins, ability to generate sales, and efficiency in areas like collecting receivables.
This document provides information about a student's ratio analysis project. It includes an introduction to ratio analysis and its advantages and limitations. It then discusses the different types of ratios, including liquidity ratios, solvency ratios, and profitability ratios. Specific liquidity ratios like current ratio and quick ratio are defined. The document also includes financial statement data from Bank of Baroda and calculations of the current ratio and quick ratio for fiscal years 2020-21, 2019-20, and 2018-19. Definitions of solvency ratios like debt to equity ratio and debt ratio are also provided.
This document provides an overview of financial statement analysis and ratio analysis. It defines key financial statements like the income statement, balance sheet, and statement of cash flows. It also explains the purpose of ratio analysis is to evaluate a firm's performance, liquidity, profitability, and financial stability by calculating and comparing various financial ratios over time and against industry benchmarks. Common ratios covered include liquidity, leverage, activity, and profitability ratios. Ratio analysis is a useful tool but requires comparing ratios to standards and accounting for company and industry differences.
This PPT covers all the important ratios which are necessary in financial analysis of a business enterprise.
Whether you are starting your career i commerce and business or you a working profession these ratios will always help you to properly analsyse a company and draw relevant conclusions The main ratios covered are:
Liquidity Ratios
Leverage Ratios
Efficiency Ratios
Profitability Ratios
Market Value Ratios
Jazzit Score is a financial reporting tool that automatically creates a comprehensive 32 page financial report analyzing the health of your clients’ business. Drawing on the trial balance info already entered in CaseWare Working Papers, it includes ratio analysis, trend analysis, comparative industry and custom defined benchmarks with insightful commentary.
Founded in 2000, Jazzit is Canada’s leading supplier of premium CaseWare templates for accountants. Our products include Jazzit Fundamentals, Jazzit Checklists and Jazzit Score, creating a powerful suite of automated solutions for SME practioners. Jazzit Fundamentals, the flagship product, is an integrated suite of over 115 templates and letters that assist public accountants in completing year-end engagements with their corporate clients. With offices in Calgary, Alberta, and Kelowna, B.C., Jazzit’s software serves over 5,000 accounting professionals across Canada.
Jazzit Score is a financial reporting tool that automatically creates a comprehensive 32 page financial report analyzing the health of your clients' business. Drawing on the trial balance info already entered in CaseWare Working Papers, it includes ratio analysis, trend analysis, comparative industry and custom defined benchmarks with insightful commentary.
Founded in 2000, Jazzit is Canada's leading supplier of premium CaseWare templates for accountants. Our products include Jazzit Fundamentals, Jazzit Checklists and Jazzit Score, creating a powerful suite of automated solutions for SME practioners. Jazzit Fundamentals, the flagship product, is an integrated suite of over 100 templates and letters that assist public accountants in completing year-end engagements with their corporate clients. With offices in Calgary, Alberta, and Kelowna, B.C., Jazzit's software serves over 5,000 accounting professionals across Canada.
A study on financial & performance analysis of acc limitedcjvicky
This document analyzes the financial performance and position of ACC Limited, India's largest cement producer, using ratio analysis. It summarizes ACC's history and industry, examines key financial ratios to analyze profitability, liquidity, asset use efficiency and debt levels over several years. The analysis finds that ACC's current ratio is below ideal levels but cash ratio is adequate, debtors' collection period is reasonable, and assets and capital are generally used efficiently. It concludes that ACC should improve its quick ratio and maintains its satisfactory debt-equity levels.
A study on financial & performance analysis of acc limited
Benchmarking
1. DISCLAIMER
27/12/2010
The information included in the following comparative financial evaluation is presented only for supplementary
analysis and discussion purposes. Such information is presented for internal management use only and is not
intended for third parties. Accordingly, we do not express an opinion or any other form of assurance on the
supplementary information.
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2. Snapshot of: O'Donnell & Associates
71.12/9 - Other engineering activities (not including
engineering design for industrial process and production or
This report is designed to Industry:
engineering related scientific and technical consulting
assist you in your business' activities)
development. Below you will Revenue: £1M - £10M
find your overall ranking, Periods: 12 months against the same 12 months from the previous
business snapshot and year
narrative write-up. Prepared by: Smart, Sample, & Co.
Financial Score for O'Donnell & Associates
LIQUIDITY -
A measure of the company's ability to meet obligations as
they come due.
PROFITS & PROFIT MARGIN -
A measure of whether the trends in profit are favourable for
the company.
TURNOVER -
A measure of how turnover is growing and whether this is
satisfactory for the company.
BORROWING -
A measure of how responsibly the company is borrowing and
how effectively it is managing debt.
ASSETS -
A measure of how effectively the company is utilising its
tangible assets.
EMPLOYEES -
A measure of how effectively the company is hiring and
managing its employees.
Financial Analysis for O'Donnell & Associates
LIQUIDITY
A measure of the company's ability to meet
obligations as they come due.
Operating Cash Flow Results
Funds flow from operations is negative, which is slightly unusual since the company is profitable. Have
unfavourable changes in working capital accounts contributed to the negative funds flow since last period?
This should be examined.
General Liquidity Conditions
In this section, the company's general and overall liquidity position is analysed. Typically, two of the most
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3. important barometers to this measurement are the current ratio and the quick ratio. The current ratio is equal
to total current assets divided by total current liabilities. The quick ratio is equal to cash plus trade debtors
divided by current liabilities. Of course, it is optimal for the company to have relative strength in both of these
key ratios, as this company has accomplished.
Fortunately, the company has both more profitability and better liquidity concurrently. This means that the
company has performed better on both the Profit and Loss Statement and the Balance Sheet this period. This
situation is very positive; however, it does not mean that the company will never have some occasional
difficulties meeting its current obligations. It does mean that the firm's general liquidity position is very good
as of this specific Balance Sheet date. In fact, the company's position is even good when compared to that of
other similar firms in the industry. One potential weak point is that the net income margin has declined, which
will be discussed in more detail in the next section. For now, simply note that net margins affect both
profitability and funds flow.
It might be good for the company to keep an eye on its trade debtor days and trade creditor days ratios. Both
of these statistics are higher than industry averages this period. The high trade debtor days number indicates
that the company may not be collecting its trade debtors as efficiently as other companies in the industry.
Also, a high trade creditor days ratio is generally not viewed well by lenders, as it suggests slower payment
habits.
Here are some things that might be done to improve the company's position over time: 1) Reduce the
company's operating cycle -- find ways to get services and products more quickly to customers. In the long
run, this is often the most effective way to improve funds flow. 2) Bill customers earlier. Shaving off even a
few days from a billing cycle can add cash to the current account each month. 3) Make sure that management
is getting accurate monthly trade debtor aging reports that show who owes money and how long it has been
outstanding. 4) Get a line of credit (or a higher one) from the bank. The company should get (not necessarily
use) as much financing as possible from the bank.
LIMITS TO LIQUIDITY ANALYSIS: Keep in mind that liquidity conditions are volatile, and this is a general
analysis looking at a snapshot in time. Review this section, but do not overly rely on it.
This is another good indicator of liquidity, although by
Generally, this metric measures the overall liquidity
itself, it is not a perfect one. If there are debtor
position of a business. It is certainly not a perfect
accounts included in the numerator, they should be
barometer, but it is a good one. Watch for big
collectible. Look at the length of time the company has
decreases in this number over time. Make sure the
to pay the amount listed in the denominator (current
accounts listed in "current assets" are collectible. The
liabilities). The higher the number, the stronger the
higher the ratio, the more liquid the company is.
company.
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4. This ratio shows the average number of days that
This number reflects the average length of time
lapse between the purchase of material and labour,
between credit sales and payment receipts. It is
and payment for them. It is a rough measure of how
crucial to maintaining positive liquidity. The lower the
timely a business is in meeting payment obligations.
better.
Lower is normally better.
PROFITS & PROFIT MARGIN
A measure of whether the trends in profit are
favourable for the company.
Despite falls in net and gross profit margins from the prior period, this company has managed to raise its net
and gross profit pounds, largely due to a significant increase in turnover. To begin with the big picture on the
company's performance, the net profit margin is strong, and it was strong last period as well. Furthermore,
net profits in pounds are up by 79.81% from last period. Generally, the company has simply done good work
in this area. The company is very profitable and is even more profitable than many of its competitors, which is
an important point and is depicted in the graph area of the report.
The one component to watch, however, is that both the net profit margin and gross profit margin have fallen
from last period. The excellent turnover and net profit increases hid this fact. Lower margins indicate that the
company may be controlling the expense side of the business less efficiently than last period. This simply
means that the company is spending more money per pound of turnover. Having lower gross margins and
lower net profit margins concurrently is a condition that may need to be reversed in the future as the
company continues to grow turnover. Success often hides potential problems; lower margins are a sign that
expenses could be getting a little out of line.
Great profit managers are like scientists -- they are always experimenting with ways to reduce expenses and
increase profits. Keep in mind that a pound of reduced expense can equal several additional pounds of
turnover generated. Some good questions for profit managers to ask themselves include the following: 1) Are
there ways to sublease space, services, or equipment to lower costs? 2) Can managers reduce postage simply
by reducing express postage charges? Companies often use expensive express services when they could
reasonably send items through the post a few days early. 3) Can the company perform an overhead audit to
see if there are any other operating expenses that could be easily reduced or cut?
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5. This number indicates the percentage of turnover that This is an important metric. In fact, over time, it is one
is not paid out in direct costs (costs of sales). It is an of the more important barometers that we look at. It
important statistic that can be used in business measures what percentage of profit the company is
planning because it indicates what percentage of generating for every pound of turnover it earns. Track
gross profit can be generated by future turnover. it carefully against industry competitors. This is a very
Higher is normally better (the company is more important number in preparing forecasts. The higher
efficient). the better.
This metric shows advertising expense for the This metric shows hire for the company as a
company as a percentage of turnover. percentage of turnover.
This metric shows G & A, wages and salaries for the
company as a percentage of turnover.
TURNOVER
A measure of how turnover is growing and whether
this is satisfactory for the company.
The company's turnover has increased significantly this period. It looks like the firm has also added a
substantial amount of fixed assets. If these assets have helped to increase turnover, then the company
should be generally pleased that the asset base is generating more revenue. Ideally, this will help the
company to earn greater profitability in the future.
BORROWING
A measure of how responsibly the company is
borrowing and how effectively it is managing debt.
Borrowing (using leverage) can be a valuable tool for a business. It can improve profitability considerably. The
only problem is that the effectiveness of leverage depends upon how well the company uses it. This company
did well in this area -- debt increased and profitability improved significantly by 79.81% from last period. In
fact, profitability actually improved at a quicker rate than debt grew, which is a very good result. If continued,
this situation should bring better returns on owners' equity over time.
When a company receives a good score in this area, it is still quite important to evaluate real returns. For
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6. example, the trend here is good, but the company will still want to determine the rates of return on assets
and borrowed money. This report only indicates trends, not acceptable rates of return on borrowed funds.
Although the overall score is high in this area, the company does not have much debt relative to equity.
Consequently, we should not put too much emphasis on this section of the report. Debt does not seem to be a
significant part of the Balance Sheet at this time.
This Balance Sheet leverage ratio indicates the
composition of a company’s total capitalisation -- the
This ratio compares a business's total borrowings to
balance between money or assets owed versus the
the funds flow generated by the business available to
money or assets owned. Generally, creditors prefer a
pay back these borrowings. It is a rough measure of
lower ratio to decrease financial risk while investors
the company's capacity to incur additional borrowings.
prefer a higher ratio to realise the return benefits of
financial leverage.
ASSETS
A measure of how effectively the company is utilising
its tangible assets.
The company is performing quite well in this area -- fixed assets were increased, but net profitability was also
improved considerably. Even overall liquidity improved, which can be difficult when increasing the asset base.
However, the net profit margin fell by 9.68%. Lower profit margins or lower liquidity could act as constraints
to the company's future asset growth.
The reader needs to temper the overall good score in the area with some important considerations. Although
the company's trend data looks positive, it is troublesome that both return on assets and return on equity
are quite low. Over time, the goal for managers of this company is to keep the positive trend and push for
adequate ROA and ROE numbers.
This calculation measures the business's ability to use
This measure shows how much profit is being returned its assets to create profits. Basically, ROA indicates
on the shareholders' equity each year. It is a vital what percentage of profit each pound of assets is
statistic from the perspective of equity holders in a producing per year. It is quite important since
company. The higher the better. managers can only be evaluated by looking at how
they use the assets available to them. The higher the
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7. better.
This asset management ratio shows the multiple of
annualised turnover that each pound of tangible
assets is producing. This indicator measures how well
tangible assets are "throwing off" turnover and is very
important to businesses that require significant
investments in such assets. Readers should not
emphasise this metric when looking at businesses that
do not possess or require significant tangible assets.
The higher the ratio, the more effective the company's
investments in Net Property, Plant, and Equipment
are.
EMPLOYEES
A measure of how effectively the company is hiring
and managing its employees.
This company achieved very strong results with its employees since the prior period. The employee base has
stayed relatively the same, but net profitability has improved significantly, as was discussed earlier in this
report. This is a good result because it means that the company is improving its net profitability per employee
statistic, which is a key performance indicator in this industry. From a financial perspective alone, this
indicates that the company is doing better at managing the people it currently has.
As noted in the Assets section of this report, fixed assets have risen significantly this period as well. Managers
should think about how the company was able to improve net profitability - what resource or resources
contributed the most to the improvement. If the company can continue to improve net profitability without
hiring more people, then it might be reluctant to add additional employees at this time. To put it simply, it
seems that the company did not need substantially more people to improve net profitability. Of course, this
analysis may not hold forever; it is just a reflection of what has already happened. Consequently, planning
will be important in this area if managers intend on hiring more people in the future.
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9. RAW DATA
31/12/2008 31/12/2009
Profit and Loss Statement Data
Turnover £937,991 £1,867,329
Cost of Sales (COGS) £408,131 £920,148
Gross Profit £529,860 £947,181
Gross Profit Margin 56.49% 50.72%
G & A, Wages & Salaries £435,625 £452,356
Hire £30,253 £35,625
Advertising £8,652 £9,565
Depreciation £0 £0
Interest Payments £0 £0
Pre-Tax Profit £286,525 £515,211
Adjusted Pre-Tax Profit £286,525 £515,211
Net Profit Margin 30.55% 27.59%
EBITDA £286,525 £515,211
Net Income £189,107 £34,039
Balance Sheet Data
Tangible Assets £82,994 £123,100
Stock £0 £0
Trade Debtors £393,510 £698,158
Cash (Bank Funds) £24,399 £110,665
Total Current Assets £417,908 £808,823
Total Assets £478,822 £909,843
Trade Creditors £143,550 £157,637
Total Current Liabilities £143,550 £221,555
Total Liabilities £143,550 £221,555
Total Equity £335,272 £688,288
Number of Employees (FTE) 15.0 15.0
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10. COMMON SIZE STATEMENTS
31/12/2008 31/12/2009
Profit and Loss Statement Data
Turnover 100% 100%
Cost of Sales (COGS) 44% 49%
Gross Profit 56% 51%
G & A, Wages & Salaries 46% 24%
Hire 3% 2%
Advertising 1% 1%
Depreciation 0% 0%
Interest Payments 0% 0%
Pre-Tax Profit 31% 28%
Adjusted Pre-Tax Profit 31% 28%
EBITDA 31% 28%
Net Income 20% 2%
Balance Sheet Data
Tangible Assets 17% 14%
Stock 0% 0%
Trade Debtors 82% 77%
Cash (Bank Funds) 5% 12%
Total Current Assets 87% 89%
Total Assets 100% 100%
Trade Creditors 30% 17%
Total Current Liabilities 30% 24%
Total Liabilities 30% 24%
Total Equity 70% 76%
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11. INDUSTRY SCORECARD
Distance from
Financial Indicator Current Period Industry Range Industry
Current Ratio 3.65 1.80 to 3.00 +21.67%
= Total Current Assets / Total Current Liabilities
Explanation: Generally, this metric measures the overall liquidity position of a business. It is certainly not a
perfect barometer, but it is a good one. Watch for big decreases in this number over time. Make sure the
accounts listed in "current assets" are collectible. The higher the ratio, the more liquid the company is.
Quick Ratio 3.65 1.30 to 2.10 +73.81%
= (Cash + Trade Debtors) / Total Current Liabilities
Explanation: This is another good indicator of liquidity, although by itself, it is not a perfect one. If there are
debtor accounts included in the numerator, they should be collectible. Look at the length of time the company
has to pay the amount listed in the denominator (current liabilities). The higher the number, the stronger the
company.
Trade Debtor Days 136.47 Days 45.00 to 75.00 Days -81.96%
= (Trade Debtors / Turnover) * 365
Explanation: This number reflects the average length of time between credit sales and payment receipts. It is
crucial to maintaining positive liquidity. The lower the better.
Trade Creditor Days 62.53 Days 20.00 to 50.00 Days -25.06%
= (Trade Creditors / COGS) * 365
Explanation: This ratio shows the average number of days that lapse between the purchase of material and
labour, and payment for them. It is a rough measure of how timely a business is in meeting payment
obligations. Lower is normally better.
Gross Profit Margin 50.72% 50.00% to 68.00% 0.00%
= Gross Profit / Turnover
Explanation: This number indicates the percentage of turnover that is not paid out in direct costs (costs of
sales). It is an important statistic that can be used in business planning because it indicates what percentage of
gross profit can be generated by future turnover. Higher is normally better (the company is more efficient).
Net Profit Margin 27.59% 2.00% to 9.00% +206.56%
= Adjusted Pre-Tax Profit / Turnover
Explanation: This is an important metric. In fact, over time, it is one of the more important barometers that
we look at. It measures what percentage of profit the company is generating for every pound of turnover it
earns. Track it carefully against industry competitors. This is a very important number in preparing forecasts.
The higher the better.
Advertising to Turnover 0.51% N/A N/A
= Advertising / Turnover
Explanation: This metric shows advertising expense for the company as a percentage of turnover.
Hire to Turnover 1.91% N/A N/A
= Hire / Turnover
Explanation: This metric shows hire for the company as a percentage of turnover.
G & A, Wages & Salaries to Turnover 24.22% N/A N/A
= G & A, Wages & Salaries / Turnover
Explanation: This metric shows G & A, wages and salaries for the company as a percentage of turnover.
Debt-to-Equity Ratio 0.32 1.30 to 3.00 +75.38%
= Total Liabilities / Total Equity
Explanation: This Balance Sheet leverage ratio indicates the composition of a company’s total capitalisation --
the balance between money or assets owed versus the money or assets owned. Generally, creditors prefer a
lower ratio to decrease financial risk while investors prefer a higher ratio to realise the return benefits of
financial leverage.
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12. Debt Leverage Ratio 0.43 N/A N/A
= Total Liabilities / EBITDA
Explanation: This ratio compares a business's total borrowings to the funds flow generated by the business
available to pay back these borrowings. It is a rough measure of the company's capacity to incur additional
borrowings.
Return on Equity 4.95% 8.00% to 22.00% -38.13%
= Net Income / Total Equity
Explanation: This measure shows how much profit is being returned on the shareholders' equity each year. It
is a vital statistic from the perspective of equity holders in a company. The higher the better.
Return on Assets 3.74% 6.00% to 12.00% -37.67%
= Net Income / Total Assets
Explanation: This calculation measures the business's ability to use its assets to create profits. Basically, ROA
indicates what percentage of profit each pound of assets is producing per year. It is quite important since
managers can only be evaluated by looking at how they use the assets available to them. The higher the better.
Fixed Asset Turnover 15.17 10.00 to 20.00 0.00%
= Turnover / Tangible Assets
Explanation: This asset management ratio shows the multiple of annualised turnover that each pound of
tangible assets is producing. This indicator measures how well tangible assets are "throwing off" turnover and is
very important to businesses that require significant investments in such assets. Readers should not emphasise
this metric when looking at businesses that do not possess or require significant tangible assets. The higher the
ratio, the more effective the company's investments in Net Property, Plant, and Equipment are.
NOTE: Exceptions are sometimes applied when calculating the Financial Indicators. Generally, this occurs
when the inputs used to calculate the ratios are zero and/or negative.
READER:
Financial analysis is not a science; it is about interpretation and evaluation of financial events. Therefore,
some judgment will always be part of our reports and analyses. Before making any financial decision,
always consult an experienced and knowledgeable professional (chartered accountant, banker, financial
planner, attorney, etc.).
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