Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
28 Cards in this Set
- Front
- Back
|
Types of ratios |
Profitability Efficiency/short term Long term liquidity/gearing Investors |
|
|
Capital employed |
Debt + equity Talcl total assets less current liabilities |
|
|
Roce formula |
PBIT (operating profit)/capital employed |
|
|
Roce use |
measures how efficiently company uses funds to generate profits. Relates profit growth to amount employed in the year. |
|
|
Roce interpretation |
See if any transactions which just affect pbit or capital employed year on year. differences between pbit and capital employed over the years |
|
|
Reasons why roce differs between years/companies |
Type of industry (construction industry more assets than knowledge based industry lower roce) Old assets (lower cv of assets due to depreciation, higher roce) Assets bought at year end. (Assets bought at year end but not generated corresponding profit) Leased assets (give rise to lease liability as well as right of use assets so well affect capital employed leading to a lower roce and higher capital employed) Assets held under revaluation model (higher depreciation lower pbit; revaluation reserve greater capital employed) |
|
|
Operating profit margin interpretations |
Might be high due to higher price and it may be depressing revenue leading to low asset turnover. |
|
|
Asset turnover |
How assets of a business are being used to generate sales |
|
|
Factors affecting gross profit margin |
Sales price Sales mix Inventory write offs Efficiency/supplier discount |
|
|
Smaller difference between gross and operating profit margin |
Better interest rate since that's the only difference between them |
|
|
Quick ratio key points |
Can get bigger than it needs to be, leading to over investment in working capital Need to look at trend |
|
|
Formula trade recs |
Trade recs/credit sales Exclude cash sales from denom Use notes to account recs for non seasonal average |
|
|
trade recs factors |
Trend Low receivables overall maybe indicative of type of company not good mgmt |
|
|
Payables factors |
Trend, increase means poor mgmt |
|
|
Asset turnover formula |
Revenue/capital employed |
|
|
Gearing ratio debt |
Debt only interest bearing debt is included |
|
|
Dividend yield |
Dividend per share/share price |
|
|
Price/earnings ratio |
Price per share/ eps |
|
|
Dividend cover |
eps/Dividend per share |
|
|
Dividend yield factors |
Last years dividends used Ex div means no right to most recent dividend |
|
|
What does dividend cover show |
Proportion of profit for year available for distribution to shareholders |
|
|
P/E shows |
Confidence of shareholders in earning capacity. |
|
|
Comparison of one entity over two periods |
State whether ratios improved or deteriorated. Identify one off events e.g. impairment and recalculate to show underlying trend |
|
|
Comparison of two entities over same period |
Key customers Major differences in accounting policy: assets at cost our fair value Industry changes (luxury vs low cost) |
|
|
Comparison of entity with industry averages |
Check if accounting policies differ Different ends of the target market Different year ends |
|
|
Acquisition of a subsidiary factors to consider |
Different accounting policies Different policies for receivables/payables Loans or shares issued for requisition Fees paid for acquisition Different profit margins Intra group transactions |
|
|
Acquisition of subsidiary timing |
Start of the year: no changes (maybe synergy) End of the year: all assets and no profits Acquired mid year: maybe six months of revenue included but entire receivables balance, could skew recs balance. |
|
|
Disposal of subsidiary |
Profit on disposal Timing of disposal (mid year means all profits and no assets) One off costs redundancy or professional fees |
