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Block 5 Section 4 External Views Of Organizational Performance

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Presentation on theme: "Block 5 Section 4 External Views Of Organizational Performance"— Presentation transcript:

1 Block 5 Section 4 External Views Of Organizational Performance
Prepared by Hanady Ali Osman

2 Financial Ratios (Pg.140 Atrill & Mc Laney)
Financial Ratios provide a quick and relatively simple means of examining the financial health of a business. Although ratios can be easy to calculate they are very difficult to interpret. H. A. Osman

3 Financial Ratios (Pg.141-142 Atrill & Mc Laney)
H. A. Osman

4 Financial Ratio Classification (Pg.141/42 Atrill & Mc Laney)
Profitability Ratios provide an insight to the degree of success in creating wealth. They express the profits made in relations to other key figures in the financial statements or to some business resource. Efficiency Ratios also known as activity ratios measure the efficiency with which certain resources have been utilized within the business. H. A. Osman

5 Financial Ratio Classification (Pg.142 Atrill & Mc Laney)
Liquidity Ratios examine the relationship between liquid resources held and creditors due for payment in the near future. Gearing Ratios examine the relationship between the amount financed by the owners of the business and the amount contributed by outsiders showing risks associated with the business. Investment Ratios assess the returns and performance of shares held in a particular business. H. A. Osman

6 Financial Ratios (Pg.141-142 Atrill & Mc Laney)
ROSF ROCE Net profit margin Gross profit margin Average stock turnover period Average settlement period for debtors Average settlement period for creditors Sales to capital employed Sales per employee Current Ratio Acid Test Ratio Operating cash flows to maturing obligations Dividend per share Dividend payout ratio Dividend yield ratio Earnings per share Operating cash flow per share Price/earning ratio (P/E) Gearing ratio Interest cover ratio H. A. Osman

7 The need for comparison (Pg. 142-143 Atrill & Mc Laney)
Calculations of performance should be compared with some benchmark that the information can be interpreted and evaluated: Bases of comparison: Past period Planned performance Similar businesses H. A. Osman

8 Key steps in financial ratio analysis (Pg. 143-144 Atrill & Mc Laney)
Identify users and Their information needs Calculate Appropriate ratios Interpret and Evaluate the results H. A. Osman

9 Profitability Ratios (pg. 146-147 Atrill & Mc Laney)
Return on Ordinary Shareholders’ funds (ROSF) Represents the amount of profit available to the owners. Net profit after taxation & preference dividend (if any) ROSF = X 100% Ordinary share capital plus reserves H. A. Osman

10 Profitability Ratios (pg. 147-148 Atrill & Mc Laney)
Return on Capital Employed (ROCO) Represents return to all suppliers of long-term finance before any deductions for interest payable to lenders of payments of dividends to shareholders are made. Net profit before interest and taxation ROCE = X 100% Share capital +Reserves +Long-term loans H. A. Osman

11 Profitability Ratios (pg. 148-149 Atrill & Mc Laney)
Net Profit Margin Represents the profit from trading operations before any costs of servicing long-term finance are taken into account. Net profit before interest & taxation Net Profit margin = X 100% Sales H. A. Osman

12 Profitability Ratios (pg. 149 Atrill & Mc Laney)
Gross Profit Margin Represents the difference between sales and the cost of sales. It measures the profitability in buying (or producing ad selling goods before any other expenses are taken into account. Gross Profit Gross Profit margin = X 100% Sales H. A. Osman

13 Efficiency Ratios (pg. 150-151 Atrill & Mc Laney)
Average Stock turnover period Measures the average period for which stocks are being held. Preferable is a low stock turnover period to a high period, as funds tied up in stocks cannot be used for other purposes. Average stock held Stock turnover period = X 365 Cost of Sales H. A. Osman

14 Efficiency Ratios (pg. 151-152 Atrill & Mc Laney)
Average settlement period for debtors Calculates how long, on average, credit customers take to pay the amounts that they owe to the business, as the speed of payment can have a significant effect on the cash flow of the business. Trade debtors Average settlement period = X 365 Credit Sales H. A. Osman

15 Efficiency Ratios (pg. 152-153 Atrill & Mc Laney)
Average settlement period for creditors Measures how long, on average, the business takes to pay its trade creditors. Trade creditors Average settlement period = X 365 Credit Purchases H. A. Osman

16 Efficiency Ratios (pg. 153-154 Atrill & Mc Laney)
Sales to capital employed or Assets turnover ratio Examines how effectively the assets of the business are being employed in generating sales revenue. Sales to capital employed ratio = Sales Long-term capital employed (Shareholders’ funds + long-term loans) H. A. Osman

17 Efficiency Ratios (pg. 154 Atrill & Mc Laney)
Sales per employed Examines the productivity of the workforce. Sales Sales per employee = Number of employees H. A. Osman

18 Liquidity Ratios (pg. 156-157 Atrill & Mc Laney)
Current ratio Examines the ability of the organization to cover its current liabilities from its current assets. Current assets Current ratio = Current liabilities (creditors due within one year) H. A. Osman

19 Liquidity Ratios (pg. 157-158 Atrill & Mc Laney)
Acid test ratio Examines the ability of the organization to cover its current liabilities from its current assets without having to sell its stock i.e. excluding stock as it is the least liquid acid. Best result at least 1. Current assets (excluding stock) Acid test ratio = Current liabilities (creditors due within one year) H. A. Osman

20 Liquidity Ratios (pg. 158-159 Atrill & Mc Laney)
Operating cash flows to maturing obligation ratio It provides a further indication of the ability of the business to meet its maturing obligation. Operating cash flows = Current liabilities H. A. Osman

21 Gearing Ratios (pg. 161 Atrill & Mc Laney)
Measures the contribution of long-term lenders to the long-term capital structure of a business. Long-term liabilities Gearing ratio X 100% = Share Capital + Reserves + long-term liabilities H. A. Osman

22 Gearing Ratios (pg. 162-163 Atrill & Mc Laney)
Interest cover ratio Measures the amount of profit available to cover interest payable. Profit before interest and taxation Interest cover ratio = Interest payable H. A. Osman

23 Investment Ratios (pg. 164-165 Atrill & Mc Laney)
Dividend per share ratio Indication of cash return that an investor receives from holding shares in a company. Dividend per Share can vary considerably between companies. Dividends announced during the period Dividend per share = Number of shares in issue H. A. Osman

24 Investment Ratios (pg. 165 Atrill & Mc Laney)
Dividend payout ratio Measures the proportion of earnings that a company pays out to shareholders in the form of dividends. Dividend payout ratio Dividends announced for the year = X 100% Earnings for the year available for dividend H. A. Osman

25 Investment Ratios (pg. 165-166 Atrill & Mc Laney)
Dividend yield ratio Relates the cash return from a share to its current market value. Dividend yield ratio Dividends per share / (1 – t) = X 100% Market value per share H. A. Osman

26 Investment Ratios (pg. 167 Atrill & Mc Laney)
Earnings per share ratio Relates the earnings generated by the company during a period and available to shareholders to the number of shares in issue. Earnings available to ordinary shareholders Earnings per share = Number of ordinary shares in issue H. A. Osman

27 Investment Ratios (pg. 167 Atrill & Mc Laney)
Operating cash flow per share ratio Provides a better guide to the ability of a company to pay dividends and to undertake planned expenditures than the earnings figure. Operating cash flows – preference dividends = Number of ordinary shares in issue H. A. Osman

28 Investment Ratios (pg. 168 Atrill & Mc Laney)
Price/earnings ratio (P/E) Relates the market value of a share to the earnings per share. The ratio is a measure of Market confidence in the future of the company. Market value per share Price/earnings ratio = Earnings per share H. A. Osman

29 Limitations of ratio analysis (pg. 173-174 Atrill & Mc Laney)
Quality of financial statements. The restricted vision of ratios. The basis of competition Balance sheet ratios. H. A. Osman

30 Green Marketing Societal marketing approach (Pg. 261 Blythe)
Green marketing by Peattie (1992) is defined as; “The management process responsible for identifying, anticipating and satisfying the requirements of customers and society, in a profitable and sustainable way” H. A. Osman

31 Green Marketing Societal marketing approach (Pg. 261 Blythe)
Determinants of orgal. environmental and social impact; its technology its economic impact, and its management style H. A. Osman

32 Green Marketing Societal marketing approach (Pg. 261/2 Blythe)
Sources of pressures for reform: Customers Green pressure groups Employees Legislation Media Ethical investment H. A. Osman

33 Green Marketing Societal marketing approach (Pg. 261/2 Blythe)
SCEPTICAL analysis: (marketing audit tool to develop green marketing policies) Social factors Cultural factors Economic factors Physical environmental factors Technological factors International factors Communications and infrastructure factors Administration and institutional factors Legal and political factors H. A. Osman

34 Green Marketing Societal marketing approach (Pg. 263 Blythe)
Psychographic typologies of customers in terms of greenness: Activists Realists Complacent Alienated H. A. Osman

35 Marketing ethics (Pg. 263 Blythe)
Ethics are the principles that define right & wrong and are divided into two: Teleological : that acts should be defined as ethical or otherwise according to the outcomes of the acts Deontological : that acts are defined as ethical or unethical regardless of the outcomes. H. A. Osman

36 Marketing ethics (Pg. 264 Blythe)
Research shows that most business people separate sets of morals for work and for home. Code of ethics should be developed and not left to chance in order to reduce conflict amongst the staff. H. A. Osman

37 Marketing ethics (Pg. 264 Blythe)
Codes of ethics in an organization should involve the following; Products Promotions Prices Distribution ethics H. A. Osman


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