Gabrielle Moran 11th September 2010 Ratio Analysis Gabrielle Moran 11th September 2010

Around Christmas in 6th Year– depending?

Why prepare accounts at all? Ascertain profit Measure performance Other people

Users Shareholders/Owners Employees Suppliers Revenue Commissioners Managers Lenders Competitors

5 aspects Profitability and efficiency Liquidity/Solvency Working Capital Gearing Investment

Cross Reference Grid Users vs Aspect Why and what looking for

Each Ratio How to calculate (formula) What it tells us Expected trends/norms Compare with/ Relate to others?

© 2008

Profitability/Efficiency © 2008 Potential Shareholders Lenders Shareholders Management Customers Why? What? Profitability/Efficiency Working Capital Liquidity/Solvency Gearing Investment

CA CL Formula Ability to pay ST debts What it shows Expected Norms © 2008 Working Capital CA CL Formula Ability to pay ST debts What it shows Expected Norms 2 : 1 Relate to Acid Test Investment

Three dimensions to topic Calculating – Murphy Interpretation – AAA, BB Definitions – Little Book

General approach to part b Calculate & recalculate if appropriate Figures given from previous year – Be Aware Comment on Trend Norms Relation to other ratios Relation to interest rates Sector

Part C Don’t forget!!! Mini part B – giving advice 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 ….

Current Ratio Who has …… Start Card

Creditors Days Current Assets Current Liabilities (Average period of credit received)

Trade Creditors X 12 (or 365) Credit Purchases Dividend Yield

Debt/Total Capital Percentage Dividend per Share Market Price per Share Debt/Total Capital Percentage X 100

Debt Capital Total Capital Gross Margin X 100

Gross Profit Sales DPS Dividend per share X 100

Return on Shareholders Funds Total Ordinary Dividend Number of issued ordinary shares Return on Shareholders Funds

Debt/Equity Ratio Profit (after tax and preference divs) Ordinary Shares plus reserves Debt/Equity Ratio X 100

Debt Capital : Equity Capital Price Dividend Ratio Debt Capital : Equity Capital

Market Price per Share Dividend per Share Net Margin

Acid Test Net Profit before interest and tax Sales X 100

Current Assets – C. Stock Current Liabilities P/E Ratio

EPS (Earnings per share) Market Price per Share EPS (Earnings per share) Stock Turnover

Cost of Sales Average Stock ( ) Fixed Asset Turnover (OS + CS) 2

Sales Fixed Assets Dividend Cover

Return on Capital Employed (RoCE) Profit (after tax and preference dividends) Total Ordinary Dividend Return on Capital Employed (RoCE)

Mark-Up Profit before interest and tax Shareholders Funds + LT Liabilities Mark-Up X 100

Debtors Days Gross Profit Cost of Sales (Average period of credit Allowed) X 100

Trade Debtors X 12 (or 365) Credit Sales Interest Cover

Operating Profit Interest Charges Earnings Per Share (EPS)

I Have …… End Card Profit (after tax and preference dividends) Number of Issued Ordinary Shares End Card

Sequence Current Ratio Acid Test Creditors Days P/E Ratio Dividend Yield Debt/Total Capital % Gross Margin DPS Return on Shareholder Funds Debt/Equity Ratio Price Dividend Ratio Net Margin 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 ….

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

Place Mat

Place Mat Draw the rectangle and 4 lines as shown Each member of the group answers the question in their own section Permission to scout ‘No 1’ reads their list – others tick or add as appropriate

Place Mat Permission to scout Individually select the most important/relevant differences in your school 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

Place Mat Agree on main points

No Yes © 2008 Perhaps