Chapter_5-2 - Chapter 5: Business performance analysis (2)...

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Chapter 5: Business performance analysis (2) ¡ Why are accounts filed and published? ¡ Operating and financial review ¡ Accounting policies ¡ Financial highlights ¡ Ratio analysis ¡ Trend analysis ¡ Non-financial performance indicators
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Efficiency Ratios Efficiency Ratios
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Efficiency ratios (2) ¡ Efficiency ratios reflex how effectively business transactions are converted into cash. ¡ These ratios generally related to the maximization of output from resources devoted to an activities or the output required from a minimum input of resources.
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Efficiency ratios (3) ¡ This ratio indicates the average time taken to receive payment from customers. ¡ Trade creditors and Sales do not include VAT Sales debtors Trade Days Debtor 365 * =
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Efficiency ratios (4) ¡ This ratio indicates the average time taken to pay for supplies received on credit. ¡ All indicators do not include VAT ) ( 365 * Purchases or Sales of Cost creditors Trade Days Creditor =
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Efficiency ratios (5) ¡ This ratio indicates the number of days that stocks could last at the forecast or most recent usage rate. ¡ This may be applied to total inventories, finished goods, raw materials, or goods. Sales of Cost Inventory Average Days Inventory 365 * =
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Efficiency ratios (6) ¡ This is the period of time which elapses between the point at which cash begins to be expended on the production of a product, and the collection of cash from the customer. ¡ What does this ratio mean if it is negative; positive? days Creditor days Debtor days Stock days Cycle Operating - + = ) (
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Liquidity Ratios (1) Liquidity Ratios (1)
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Liquidity Ratios (2) ¡ The degree to which assets are held in a cash or near-cash form is determined by the level of obligations that need to be met by the firm. ¡ The liquidity ratios reflect the health or otherwise of the cash position of the business and its ability to meet it short-term obligations.
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¡ Is an overall measure of the liquidity of the business. ¡ Good, if it is about 1. s
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This note was uploaded on 09/14/2010 for the course ACCOUNTING 311 taught by Professor Peter during the Summer '10 term at St. Louis CC.

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Chapter_5-2 - Chapter 5: Business performance analysis (2)...

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