Transcript BAF2 Powerpoint presentation

Profitability Ratios
Profitability Ratios Calculation
(1)
gross margin %
=
gross margin
sales
=
sales - cost of sales (COS)
sales
operating profit % = operating profit = sales - COS - other operating expenses
sales
sales
or profit before
interest and tax (PBIT)
profit before tax % =
(PBT)
profit before tax = operating profit +/- net interest
sales
sales
net profit % = net profit = profit before tax (PBT) - corporation tax
or
sales
sales
return on sales (ROS)
Profitability Ratios Calculation
(2)
return on investment (ROI) =
or return on capital employed
(ROCE) %
return on equity (ROE) =
capital turnover =
operating profit _____ (pre-tax)
total assets - current liabilities
(usually averaged)
profit after tax__
equity
sales____ ________
average capital employed in year
Efficiency Ratios
Efficiency Ratios Calculation
(1)
debtor days =
trade debtors x 365
sales
creditor days = trade creditors x 365
cost of sales
stock days =
or stock
turnover
(or purchases)
stock value_________
average daily cost of sales in period
finished goods
average weekly
dispatches
raw materials
average weekly raw
material usage
work in progress
average weekly
production
Efficiency Ratios Calculation
(2)
stock weeks =
total stock value_____
average weekly cost of sales
operating cycle (days)
(total COS for the year
divided by 52)
= stock days + debtor days - creditor days
operating cycle % = working capital requirement (stocks + debtors - creditors)
sales
asset turnover (times)
=
sales __
total assets
Liquidity Ratios
Liquidity Ratios Calculation
current ratio (times)
acid test (times)
or quick ratio
=
=
current assets__
current liabilities
current assets - stocks_
current liabilities
defensive interval (days) =
quick assets______ (current assets – stocks)
average daily cash from operations
Investment Ratios
Investment Ratios Calculation
(1)
earnings per share
or
eps (pence)
=
profit after tax - preference share dividends
number of ordinary shares in issue
dividend per share
=
total dividends paid to ordinary shareholders
number of ordinary shares in issue
dividend cover =
earnings per share
dividend per share
Investment Ratios Calculation
(2)
dividend yield % =
dividend per share
share price
price/earnings ratio
or
P/E ratio
=
current share price
eps
capital expenditure to sales % = capital expenditure for year
sales
capital expenditure to gross fixed assets % = capital expenditure for year___
gross value of tangible fixed assets
Financial Ratios
Financial Ratios Calculation
(1)
gearing
=
debt equity ratio =
or leverage (D/E)
long-term debt
equity + long-term debt
long-term debt
equity
Financial Ratios Calculation
(2)
dividend cover (times)
=
earnings per share (eps)
dividend per share
interest cover (times) = profit before gross interest and tax
gross interest payable
which way also be considered in terms of cash flow:
cash interest cover (times)
= net cash inflow from operations + interest received
interest paid
The Best Performance Measure
– Cash or Profit?
cash flow and cash ratios are becoming increasingly as
important as profit and profitability ratios in the
measurement of business performance
there is no best way of evaluating financial performance
and there are advantages and disadvantages in using
earnings per share or cash flow as the basis of
measurement
The Advantages
Format
and Disadvantages
1
of Using
Profit
Cash
andFlow
LossasAccount
a Measure of
Company Performance
The Advantages
Format
and Disadvantages
1
of Using
Profit
Earnings
and Lossper
Account
Share (eps)
as a Measure of Company
Performance
Tomkins plc EBITDA for 1998
to 2002
earnings before interest, tax, depreciation and
amortisation, EBITDA is now commonly used as a close
approximation of a cash flow performance measure