Unit 6 Ratio Analysis - BFA103 – Financial Accounting and...

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Unformatted text preview: BFA103 – Financial Accounting and Decision Making 2 nd Semester 2009 ___________________________________ School of Accounting & Corporate Governance School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Unit 6 Analysis of Company reports ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Ratios highlight the financial strengths and weaknesses of a business and enable users to identify areas for further investigation. ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Ratios calculate the relationships between figures taken from the three main financial reports and express this relationship in the form of a percentage, fraction or proportion . ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Using ratios enables the users to make comparisons ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Different user groups will identify with and focus on different ratios. ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making The groups of ratios covered in this unit are: • gearing • investment appeal ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Calculating Ratios Lecture Illustration 5.1 - Anders Ltd continued • Other information • Net cash from operating activities for the year ended 30 June 2007 $820 000. • All sales and purchases of inventory are on credit. • The market price of a share in Anders Ltd on 30 June 2007 is $2. ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making Gearing ratios • Gearing (or leverage) refers to the extent to which a business relies on funds borrowed from institutions outside the business as opposed to funds provided by the owners/shareholders of the business. ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making The financing decision is crucial ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making They also have the potential to provide greater returns to shareholders as long as the profits earned are greater than the cost of the borrowings . ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making (a) Gearing non-current liabilities (NCL) x 100 total shareholders’ equity + NCL ___________________________________ School of Accounting & Corporate Governance BFA103 Financial Accounting & Decision Making 3,180 x 100 2,340 + 3,180 = 58 % 58% of the claims on the business (apart...
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This note was uploaded on 04/30/2011 for the course ECONOMIC 0053665 taught by Professor Allen during the Spring '10 term at American Baptist.

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Unit 6 Ratio Analysis - BFA103 – Financial Accounting and...

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