...Ratio Analysis – P7 Basic Ratios The business can know its performance by calculating certain ratios. Ratio analysis is a tool that business can use to know how it is doing. Ratios will help the business to make a comparison with other businesses or within the same business for the previous years. There are three types of ratios: Solvency ratios: Helps to know the ability of a business to meet its expenses, liabilities on time. Examples: Current ratio, Acid-test ratio Profitability ratios: Helps the business to know about the profitability. Examples: Gross profit percentage, Net Profit percentage, Return on capital employed Efficiency ratios: Helps to know how a business is efficient in terms of selling the goods, collecting its debts, using fixed assets etc. Examples: Stock turnover, Debtors collection period, creditors’ payment period Page 1 of 4 Ratio Analysis – P7 Question: Using the below profit and loss account and the balance sheet of Khalida’ Fashions to calculate all types of ratios for 2012 and 2013. Khalida’s Fashions LTd. Profit and loss account Sales Less: cost of sales: Opening stock + purchases -Closing stock Gross profit Less: Expenses: Rent and rates Advertising Wages Administration Insurance Interests Telephone Accountancy fees Legal fees Bank charges Depreciation Repairs and maintenance Heat and lights Miscellaneous Total Expenses Net profit 2012 2013 150000 180000 5000 51000 (6000) (50000) 100000 ...
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...2. Calculate 2013, 2012, and 2011 current and quick ration based on the data from balance sheet and income statements? What can you say about the company’s liquidity position in 2011, 2012, and 2013. We often think of ratios as being useful (1) to managers to help run business, (2) to bankers for credit analysis, and (3) to stockholders for stock valuation. Would these different types of analysts have an equal interest in the liquidity ratios? 3. Calculate 2013, 2012, and 2011 inventory turnover days sales outstandings (DSO), fixes assets turnover, and total assets turnover. How does company’s utilization of assets stack up against competitor’s firm in its industry. 4. Calculate 2013, 2012, and 2012 debt, time-interest-earned ratios. How does company compare with its competitor and industry with respect to financial leverage. What can you conclude from these ratios? 5. Calculate 2013, 2012, and 2011 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios? 6. Calculate the 2013, 2012, and 2011 price/earning ratio, price/cashflow ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company? Perform the same analysis for the competitor? 7. Perform a common size analysis and percentage change analysis. What do these analyses tell you about the company and competitor? 8. Use the extended Du Pont equation to provide a summary and...
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...| # Staff | Min | Mid-Pt | Max | Mean actual wage | Compa-ratio | A | 3 | 24,000 | 30,000 | 36,000 | 29,600 | | B | 5 | 27,200 | 32,000 | 36,800 | 31,000 | | C | 8 | 26,100 | 29,000 | 31,900 | 31,000 | | D | 7 | 22,400 | 28,000 | 33,600 | 32,000 | | Median | | | | | | | Mean | | | | | | | Weighted Mean | | | | | | | CR (Compa-ratio) = AS (actual salary) MP (midpoint of pay range) Calculate the median wage at minimum, midpoint, maximum and actual. For each firm, calculate the compa-ratio expressed to 2 decimals. Calculate the mean salary at minimum, midpoint, maximum and actual. Calculate the weighted mean wage at minimum, midpoint, maximum and actual. For each firm, calculate the compa-ratio expressed to 2 decimals. Below, using the mean actual, show your recommended new salary range with a spread of 15% between min and midpoint and 15% between midpoint and max. Round the salaries to the nearest hundred dollars. ____________ _________ ____________ (Minimum) (Midpoint) (Maximum) MERIT INCREASE RECOMMENDATIONS Assume that all salary ranges in your firm are increasing by 3%. As the Compensation Manager, you have created the following increase guidelines to be used by line managers for determining the appropriate salary increase for each employee. Performance Rating | Compa-Ratio.8 - .89 | Compa-Ratio.9 - .99 | Compa-Ratio1.0 | Compa-Ratio1.01 – 1.09 | Compa-Ratio1...
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...1 Ratios and interpretation As we learnt in our earlier studies, accounting information is used to answer two key questions about a business: • Is it making a profit? • Are its assets sufficient to meet its liabilities? We have also considered the form in which different types of businesses prepare their final accounts. Now we need to examine in more detail how these accounting statements can be used to assess a business’ performance and progress. There are two stages in this process: 1 Analysis This is the detailed examination of various aspects of a business’ performance. To make comparisons (with other businesses or for the same business over a period of time) easier and more meaningful, the results are expressed as percentages or ratios, e.g. the percentage of gross profit to sales, or the working capital ratio. 2 Interpretation Here the results of analysis are used to judge a business’ performance. This is done by making comparisons a with other similar businesses, usually within the same year, e.g. was the gross profit to sales percentage last year better or worse than the average for the trade or industry? b for the same business over a number of years, e.g. has the trend of the gross profit percentage to sales over the last five years been up or down? We will also examine the extent to which analysis and interpretation are useful tools for owners and others in making and assessing business decisions. This unit is divided into three sections: Section 1: Ratios Section...
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...in the same period as their associated revenues. Accruals. An amount incurred as an expense in a given accounting period—but not paid by the end of that period. An example would be the electricity bill for a given quarter. Acid-test ratio. See quick ratio. Activity-based costing (ABC). An approach to cost accounting that focuses on the activities or cost drivers required to produce each product or provide each service. ABC assumes that most overhead costs are related to activities within the firm and that they vary with respect to the drivers of those activities. Allocation. The process of spreading costs from one expense category to several others, typically based on usage. For example, such corporate overhead expenses as rent and utilities may be charged to departmental units based on square feet. Amortized expenses. The costs for assets, particularly intangible assets such as intellectual property, which are depreciated (expensed) over time to reflect their usable life. Assets. The economic resources of a company. Assets commonly include cash, accounts receivable, notes receivable, inventories, land, buildings, machinery, equipment, and other investments. Asset turnover. A measure of how efficiently a company uses its assets. To calculate asset turnover, divide sales by assets. The higher the number, the better....
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...What is Sharpe Ratio? A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance. The Sharpe ratio is calculated by subtracting the risk-free rate - such as that of the 10-year U.S. Treasury bond - from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. The Sharpe ratio formula is: The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. A negative Sharpe ratio indicates that a risk-less asset would perform better than the security being analyzed.1 Here is how we calculate it: 1) Open Excel and enter all historical portfolio values found here http://www.stocktrak.com/private/account/graphportfolio.aspx (click on Historical Portfolio Values) 2) Calculate daily portfolio value returns Days Hist. Portfolio Values Return 1 $1,002,109.69 0.07% 2 $1,002,804.38 0.00% 3 $1,002,804.38 0.02% 4 $1,002,968.76 -0.35% 5 $999,500.95 0.60% 6 $1,005,498.14 1.74% 7 $1,023,029.42 0.60% 8 $1,029,213.20 -0.03% 9 $1,028,899.47 0.00% 10 $1,028,899.47 0.00% 11 $1,028,899.47 -0.06% 12 $1,028,263.28 -0.11% 13 $1,027,107.05 0.02% 14...
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...1-Compute all industry ratios presented for East Coast Yachts and COMPARE and comment on each ratio as compared to the Industry Median. (60pts) Industry ratios presented for East Coast Yachts Current ratio = $11,270,000 / $15,030,000 Current ratio = 0.75 times Quick ratio = ($11,270,000 – 4,720,000) / $15,030,000 Quick ratio = 0.44 times Total asset turnover = $128,700,000 / $83,550,000 Total asset turnover = 1.54 times Inventory turnover = $90,700,000 / $4,720,000 Inventory turnover = 19.22 times Receivables turnover = $128,700,000 / $4,210,000 Receivables turnover = 30.57 times Total debt ratio = ($83,550,000 – 42,570,000) / $83,550,000 Total debt ratio = 0.49 times Debt-equity ratio = ($15,030,000 + 25,950,000) / $42,570,000 Debt-equity ratio = 0.96 times Equity multiplier = $83,550,000 / $42,570,000 Equity multiplier = 1.96 times Interest coverage = $18,420,000 / $2,315,000 Interest coverage = 7.96 times Profit margin = $9,663,000 / $128,700,000 Profit margin = 7.51% Return on assets = $9,663,000 / $83,550,000 Return on assets = 11.57% Return on equity = $9,663,000 / $42,570,000 Return on equity = 22.70% Liquidity or Short-Term Solvency Ratios Calculate and compare to industry ratios: | East Coast Yachts | Lower Quartile | Median | Upper Quartile | Positive, Negative, or Neutral Relative to Industry | Current Ratio | 0.75 | 0.50 | 1.43 | 1.89 | NegativeIt is not positive as it is lower than median. It shows that...
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...store, or many other things. This can be the same type of company you chose in assignment 8, or it can be different. a. Describe the type of company you chose. (1-2 sentences. 0.5 points) b. If you needed to get funding for your company, would you prefer to get debt funding or equity funding? Explain why you would prefer this type. (2-4 sentences. 2.0 points) c. If you needed to get funding for your company, describe at least two sources of funding that you would prefer. Explain why you would prefer these sources of funding. (2-4 sentences. 2.0 points) d. List at least four operating costs your business might have. (1.0 points) e. Consider the industry of your company and the current economy, and then explain how these factors might impact your company’s sales. If you do not think these factors would impact your sales, explain why they wouldn't. (2-4 sentences. 2.0 points) f. If you had $5,000 to start this company, which department would get the most funding? Which department would get the least funding? Which phase of the business would be the most expensive? (2-4 sentences. 2.0 points) 2. Review the Financial Statements: Income Statement from Section 9, Lesson 2 of this course. Use the information from the example income statement for Jamie's Bead Jewelry to answer the questions below. a. What are the two sources of revenue for the company? (0.5 points) b. What is the company's total revenue? (0.5 points) ...
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...How to calculate the Sensex PE | Ashutosh Wakhare | | | | | | | | | | | | | | | | | | | | Top Emailed Features | • The art of 'outercourse' to spice up sex life! • Interviews: How to negotiate your salary • Sex queries: 'What's the normal duration of sex? | | | | | | Have you tried this? • Ask a question • News on your Desktop | | | | | | | | | | | | | | Get news updates: | What's this? | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Advertisement | | | | | | | | April 10, 2007Any novice, even after taking a casual stroll on Dalal Street (as the stock market is lovingly referred to), will start chirping words likevaluations, foreign institutional investors, and of course price to earnings ratio, PE.This is one term, which is most widely used by experts and novices alike to determine the value of a company or for that matter an entire index like, say Sensex.Simply put it is a ratio of the current market price of a stock to itsearnings per share, EPS, and its unit is in 'multiple' or 'times'.This multiple (times) implies the amount an investor is ready to pay for every one rupee earned (profit) by a company.If PE of a company is 30 it means that investor/s is/are ready to pay Rs 30 for every one rupee that the company earns in profits.In short, PE of a company = Market price / Earnings per share.If the market price of a company on a given day...
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... including readings/articles from The Wall Street Journal. Know your vocabulary terms. Introduction– How can companies enhance the value of their management accounting systems? What roles do management accountants perform? Explain and give examples of a management accountant's scorekeeping, attentiondirecting and problem solving functions. What guidelines do management accountants use? What do we mean by different costs for different purposes? Cost Terms (Behaviors) and Purposes – What are direct costs? Indirect costs? What is the difference between cost tracing and cost allocation? Discuss the factors that affect direct/indirect cost classifications. What is a cost driver? What is the relevant range, and what is its relationship to the various types of costs? How does a fixed cost behave in total and on a per unit basis? How does a variable cost behave in total and on a per unit basis? How do these costs (in total and per unit) appear on a graph? What about a mixed cost? How do changes in the activity level affect these costs? Be able to determine cost behavior from graphical presentations. What is the gross margin? the contribution margin? Take a factual situation and calculate the gross margin percentage and the contribution margin percentage. Explain these margins in layman’s terms. Be able to prepare a simple income statement. How do you calculate average cost per unit? What is the danger of making decisions based on an average cost per unit calculation...
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...you can only use the one year number not an average. | | | Assume interest expense is $0.00 | | | | | | Be careful of the Debt equity ratio. The review covers debt asset ratio as an example of how to calculate ratios and that is different from debt equity ratio, | and that is different from the debt equity ratio so think about how you calculate the debt equity ratio using the debt asset ratio as an example. | Be sure to cite your references | | | | | | Green boxes to be filled in by instructor | | | | | Ratio | Formula (express the ratio in words) | Detailed calculation (actual numbers from financial statements used for the calculation) | Final number (final result of the detailed calculation) | Explanation of why ratio is important | Earned points (up to 3 points per "box"/cell) | Instructor feedback | Example: | Term A/Term B (Term A divided by Term B) | 1000/2000 | .50 | This is the explanation of the role of this ratio and why it is important | 3 | | Efficiency Ratio: Receivables Turnover | net credit sales/average Accounts Receivable | 50,000,000/33,000,000 | 1.52 | It measures how efficient a company uses it's assets | | | Grade for above | | | | | 0.0 | | Efficiency Ratio: Inventory Turnover | Cost of Goods Sold/Average Inventory | 9,000,000/32,000,000 | 0.28 | It calculates how often the on-hand inventory gets sold. | | | Grade...
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...BUSINESS BUILDER 7 HOW TO ANALYZE PROFITABILITY zions business resource center 2 how to analyze profitability Although pride of ownership and career satisfaction are healthy goals, generating profit is the most likely reason you started your business. This guide introduces you to several methods for analyzing your company’s operations and calculating the profitability of your business. What You Should Know Before Getting Started Profitability Ratios • Gross Profit Margin • Operating Profit Margin Ratio • Net Profit Margin Ratio • Other Common Size Ratios 3 4 6 7 7 7 Break-Even Analysis • What is Break-Even Analysis? • Break-Even Analysis for Sales • Using Break-Even Analysis for Profit Planning • Break-Even Analysis for Units Sold 9 9 9 11 12 Calculating Return on Assets and Return on Investment • Return on Assets • Return on Investment 13 13 14 Checklist Resources 15 16 how to analyze profitability 3 what to expect Many entrepreneurs start their business, at least in part, because of pride of ownership and the satisfaction that comes from being their own boss. In addition, of course, you almost certainly started your business to generate profits. This Business Builder will introduce you to several methods that will help you analyze your company’s operations and compute the profitability of your business. Among the tools to which you will be introduced are profitability ratios, break-even analysis, return on assets and return...
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...help sharpen you analytical skills. The questions in the workbook are numbered the same way as they are in the book, ‘Getting Under the Hood of an Annual Report’. As there are no questions in the first chapter of the book, the workbook starts with Chapter 2. It will make it easier for you to relate the questions in the workbook to those in the book. Your input to the workbook will appear in a dark green font while the questions appear in blue. The different font colors can make it easier for you to see your work. You’ll need to do some number crunching to complete your annual report analysis. The Big Calculating Tool, located on your CD, can save you a great deal of time and make the number crunching nearly painless. Every ratio and calculation for the book is included in the Big Calculating Tool. You’ll have more time for analysis if you use the Big Calculating Tool. Table of Contents Questions for Chapter 2 4 Question 2.0 – What do you want to learn about company and why? 4 Question 2.1 - Fundamental Information Set For Your Company 4 Question 2.2 - The Marketplace Context 5 Question 2.3 - Challenges and Success for Your Company 6 Questions for Chapter 3 8 Question 3.1 – What is Management saying about your company? 8 Question 3.2 – What did the Chairman say? 9 Question 3.3 – Internal Controls and Auditors 10 Questions for Chapter 4 11 Question 4.0 – What is your company’s fiscal year 11 Question 4.1 – Current Assets 11...
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...TABLE OF CONTENT ACKNOWLEDGEMENTS 2 1. COLEMAN SYSTEM BACKGROUND INFORMATION 4 2. COST OF CAPITAL FOR COLEMAN SYSTEMS 5 2.1 Calculate cost of debt (rd) 5 2.2 Calculate ratio debt/capital and equity/capital in market value terms 6 2.3 Calculate Beta (β) for Coleman Systems 8 2.4 Calculate Cost of Equity 10 2.5 Calculate the weighted average cost of capital for Coleman Systems 10 3. THE WACC AND PROJECT VALUES FOR DIFFERENT DEBT – EQUITY RATIOS AND THE OPTIMAL CAPITAL STRUCTURE FOR THE PROJECT 11 3.1 Case 1: No bankruptcy risk without tax 11 3.2 Case 2: No bankruptcy risk with tax 13 3.3 Case 3: With bankruptcy risk with tax 15 4. DISCUSSION ON AGENCY AND SIGNALLING EFFECT 18 5. REPLACEMENT PFOJECT 21 5.1 Replacing Machine A with Machine B 21 5.2 Replacing Machine A with Machine C 26 6. UNDERTAKE A SENSITIVITY ANALYSIS FOR THE TWO PROJECTS. 31 REFERENCES 34 SEMESTER 2013 CORPORATE FINANCE–BMCF5103 ASSIGNMENT (60%) 1. COLEMAN SYSTEM BACKGROUND INFORMATION Coleman Systems is a private manufacturing company that makes electrical components. We have the following information about Coleman, as well as three listed companies in the electronics industry. |Term |Coleman |Skye |Allied |Foust | |Book value of assets (£m) ...
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...decomposed into the asset turnover and the A. gross margin ratio. B. profit margin ratio. C. operating margin ratio. D. contribution margin ratio. 2. How will decreases in the following items affect return on investment (ROI)? [pic] A. a B. b C. c D. d 3. The CJP Company produces 10,000 units of item S10 annually at a total cost of $190,000. [pic] The XYZ Company has offered to supply 10,000 units of S10 per year for $18 per unit. If CJP accepts the offer, $4 per unit of the fixed overhead would be saved. In addition, some of CJP's facilities could be rented to a third party for $15,000 per year. What are the relevant costs for the "make" alternative? A. $160,000 B. $165,000 C. $175,000 D. $185,000 4. The following information is available about the Winter Division of Washburn Company. Washburn requires a return of 9% from all divisions. [pic] Required: [Take all calculations to 4 decimal places] a. Compute the ROI for the Winter Division. b. Compute the residual income for the Winter Division. 5. Bayside Wholesaling has the following data for its three divisions for the year: [pic] Required: a. Compute divisional operating income for each of the divisions. Assume taxes are 30%. b. Calculate the gross margin ratio for each division. c. Calculate the operating margin ratio for each division. d. Calculate the profit margin ratio for each division. 6. The XYZ Manufacturing...
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