Transcript Slide 1

Ratio Analysis
Gabrielle Moran
11th September 2010
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Around Christmas in 6th Year– depending?
Why prepare accounts at all?
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Ascertain profit
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Measure performance
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Other people
Users
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Shareholders/Owners
Employees
Suppliers
Revenue Commissioners
Managers
Lenders
Competitors
5 aspects
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Profitability and efficiency
Liquidity/Solvency
Working Capital
Gearing
Investment
Cross Reference Grid
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Users vs Aspect
Why and what looking for
Each Ratio
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How to calculate (formula)
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What it tells us
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Expected trends/norms
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Compare with/ Relate to others?
© 2008
© 2008
Lenders
Profitability
/Efficiency
Working
Capital
Liquidity/
Solvency
Gearing
Investment
Why?
What?
Shareholders
Potential
Shareholders
Management
Customers
© 2008
Working Capital
Formula
CA
CL
What it
shows
Ability to
pay ST
debts
Expected
Norms
2:1
Relate to
Investment
Acid
Test
Three dimensions to topic
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Calculating – Murphy
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Interpretation – AAA, BB
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Definitions – Little Book
General approach to part b
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Calculate & recalculate if appropriate
Figures given from previous year – Be Aware
Comment on
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Trend
Norms
Relation to other ratios
Relation to interest rates
Sector
Part C
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Don’t forget!!!
Mini part B – giving advice
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opportunity to buy share
To company
Discuss rising liquidity ratio is a sign of prudent
management
Gross profit % changing explain
Methods for learning formulae
Daily test -- immunity
Dominos
Follow me
Bingo
Little Booklet (pass definitions)
Methods for tackling part (b)
Place mat
Tri Pie
Cross ref chart
Follow me ….
Who has ……
Start Card
Current Ratio
Current Assets
Creditors Days
Current Liabilities
(Average period of credit received)
Trade Creditors X 12 (or 365)
Credit Purchases
Dividend Yield
Dividend per Share
Market Price per Share
X 100
Debt/Total Capital
Percentage
Debt Capital
Total Capital
X 100
Gross Margin
Gross Profit
Sales
X 100
DPS
Dividend per share
Total Ordinary Dividend
Number of issued ordinary shares
Return on
Shareholders Funds
Profit (after tax and preference divs)
Ordinary Shares plus reserves
X 100
Debt/Equity Ratio
Debt Capital : Equity Capital
Price Dividend
Ratio
Market Price per Share
Dividend per Share
Net Margin
Net Profit before interest and tax
Sales
X 100
Acid Test
Current Assets – C. Stock
Current Liabilities
P/E Ratio
Market Price per Share
EPS (Earnings per share)
Stock Turnover
Cost of Sales
Average Stock ( (OS 2+ CS) )
Fixed Asset
Turnover
Sales
Fixed Assets
Dividend Cover
Profit (after tax and preference dividends)
Total Ordinary Dividend
Return on Capital
Employed (RoCE)
Profit before interest and tax
Shareholders Funds + LT Liabilities
X 100
Mark-Up
Gross Profit
Cost of Sales
X 100
Debtors Days
(Average period of credit Allowed)
Trade Debtors X 12 (or 365)
Credit Sales
Interest Cover
Operating Profit
Interest Charges
Earnings Per Share
(EPS)
I Have ……
Profit (after tax and preference dividends)
Number of Issued Ordinary Shares
End Card
Sequence
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Current Ratio
Creditors Days
Dividend Yield
Debt/Total Capital %
Gross Margin
DPS
Return on
Shareholder Funds
Debt/Equity Ratio
Price Dividend Ratio
Net Margin
11.
12.
13.
14.
15.
16.
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18.
19.
20.
Acid Test
P/E Ratio
Stock Turnover
Fixed Asset Turnover
Dividend Cover
Return on Capital
Employed (RoCE)
Mark-Up
Debtors Days
Interest Cover
Earnings Per Share
Dominos ….
Return on Capital
Employed (ROCE)
Profit (after tax and preference dividends)
Total Ordinary Dividend
Return on Capital
Employed (ROCE)
Profit (after tax and preference dividends)
Total Ordinary Dividend
Dividend Cover
Sales
Fixed Assets
Bingo
Students - Draw 3x3 grid
 Teacher – List 15 terms on board
 Students - select 9 terms and create bingo
card
 Teacher – read out definition of terms
 Students – cross out the appropriate terms
when they match the definitions
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Place Mat
Place Mat
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Draw the rectangle and 4 lines as shown
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Each member of the group answers the
question in their own section
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Permission to scout
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‘No 1’ reads their list – others tick or add as
appropriate
Place Mat
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Permission to scout
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Individually select the most important/relevant
differences in your school
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No 2 writes no 1’s main difference into the
centre box; No 3 writes no 2’s etc.
or
group arrives at consensus as to the most
important points
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Place Mat
Agree on main
points
Yes
No
Perhaps
© 2008