Gabrielle Moran11th September 2010

Ratio Analysis

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?

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Profitability/Efficiency

Liquidity/Solvency

Gearing

Investment

Working Capital

Why?What?

LendersPotential

ShareholdersShareholders Management Customers

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Formula

2 : 1Expected

Norms

Acid Test

Relate to

Investment

Ability to pay ST debts

What it shows

CACL

Working Capital

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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 RatioStart Card

Who has ……

Creditors Days(Average period of credit received)

Current Assets

Current Liabilities

Dividend YieldTrade Creditors X 12 (or 365)

Credit Purchases

Debt/Total Capital Percentage

Dividend per Share

Market Price per Share X 100

Gross Margin Debt Capital

Total Capital X 100

DPS

Dividend per share

Gross Profit

SalesX 100

Return on Shareholders Funds Total Ordinary Dividend

Number of issued ordinary shares

Profit (after tax and preference divs)

Ordinary Shares plus reservesDebt/Equity RatioX 100

Price Dividend Ratio

Debt Capital : Equity Capital

Net Margin Market Price per Share

Dividend per Share

Acid Test Net Profit before interest and tax

SalesX 100

P/E RatioCurrent Assets – C. Stock

Current Liabilities

Stock TurnoverMarket Price per Share

EPS (Earnings per share)

Fixed Asset Turnover

Cost of Sales

Average Stock ( )(OS + CS)2

Dividend CoverSales

Fixed Assets

Return on Capital Employed (RoCE)

Profit (after tax and preference dividends)

Total Ordinary Dividend

Mark-Up Profit before interest and tax

Shareholders Funds + LT LiabilitiesX 100

Debtors Days(Average period of credit Allowed)

Gross Profit

Cost of SalesX 100

Interest CoverTrade Debtors X 12 (or 365)

Credit Sales

Earnings Per Share

(EPS)Operating Profit

Interest Charges

Profit (after tax and preference dividends)

Number of Issued Ordinary Shares

I Have ……

End Card

Sequence1. Current Ratio2. Creditors Days3. Dividend Yield4. Debt/Total Capital %5. Gross Margin6. DPS7. Return on Shareholder

Funds8. Debt/Equity Ratio9. Price Dividend Ratio10. Net Margin

11. Acid Test12. P/E Ratio13. Stock Turnover14. Fixed Asset Turnover15. Dividend Cover16. Return on Capital

Employed (RoCE)17. Mark-Up18. Debtors Days19. Interest Cover20. Earnings Per Share

Dominos ….

Return on Capital Employed (ROCE)

Profit (after tax and preference dividends)

Total Ordinary Dividend

Return on Capital Employed (ROCE)

Profit (after tax and preference dividends)

Total Ordinary DividendDividend Cover Sales

Fixed Assets

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

• 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

Place Mat

Agree on main points

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NoYes

Perhaps