Wednesday, April 16, 2014

Performance Measurement Part1


Profitability ratios
Ø  Return On Capital Employed = (Profit Before Interest and Tax / Capital Employed) * 100%
Ø  Return on Equity = (Earnings attributable to ordinary shareholders / Shareholders' equity) * 100%
Ø  Asset Turnover = Sales / Capital Employed
Ø  Net Profit Margin = (Profit Before Interest and Tax / Sales) * 100%
Ø  Gross Profit Margin = (Gross Profit / Sales) * 100%
Liquidity ratios
Ø  Current ratio = Current assets / Current Liabilities
Ø  Quick ration (Acid Test Ratio) = (Current Assets - Inventory) / Current Liabilities
Ø  Efficiency ratios
o   Receivables/debtors' collection period = (Receivables / Sales) * 365days
o   Payables/creditor's payment period = (Payables/Purchases) * 365days
o   Inventory/stock turnover period = (Inventory/Cost of sales) * 365days
Investors' ratios
Ø  Earnings per share = Earnings attributable to ordinary shareholders / Number of ordinary shares
Ø  Dividend payout ratio = Dividend per share / Earnings per share
Ø  Dividend cover = Earnings per share / Dividend per share
Ø  Dividend yield = (Dividend per share / Market value of share) * 100%
Ø  Price Earnings ratio = Current share price per share / Earnings per share
Gearing ratios
Ø  Financial gearing (equity) = Prior charge capital / Equity capital (including reserve)
Ø  Financial gearing (total) = Prior charge capital / (Equity capital + Debt)    ((Prior charge capital gives holder right to receive interest and dividends.))
Ø  Operational leverage = Fixed costs / Variable costs
Ø  Operational gearing  = Contribution / Profit Before Interest and Tax
Ø  Interest cover = Profit before interest and taxation / Interest payable

Interrelation between ratios: Du Pont analysis
Return on equity = Return on investment * (Total assets/Equity)
Ø  Return on investment = Return on sales * Assets turnover
o   Return on sales = Net income/Sales
§  Net income = Sales - Total costs
o   Assets turnover = Sales/Total assets
§  Total assets = Non-current assets + Current assets

ROFCE = ROCE means current ratio is 1. (R = Return, O = On, F = Fixed, C = Capital and E = Employed)


CIMA Article: Financial Analysis


ACCA Article: Interpreting Financial Statements - RATIOS

1 comment:

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