lecture_19_analysis_of_accounts_3

lecture_19_analysis_of_accounts_3 - MA826 19- Analysis of...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
MA826 19- Analysis of Accounts 3
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Measures used by investors in shares There are four broad groups Ratios involving share information Profitability Ratios Liquidity Ratios Efficiency ratios Today we will look at the latter three Firstly Profitability ratios Used to assess if the company is producing acceptable return for its owners. Most important ratio is:
Background image of page 2
Return on Capital Employed Two commonly used definitions: Net Profit before Tax & Interest x 100% Share Capital + Reserves + Long Term Debt Or Net Profit before Tax x 100% Share Capital + Reserves Second definition is also called return on shareholder’s capital or return on owners’ equity
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Return on Capital Employed The ratio measures efficiency of assets at producing profits Useful in assessing companies when investing. If ratio falls should investigate: Profits have fallen? Sales have fallen? Capital has increased without corresponding return? Recession : ROCE Boom: ROCE
Background image of page 4
Return on Capital Employed Consistency between numerator and denominator is very important in calculating return and capital amount. Can be used for borrowing decisions if stable. For borrowing to be sensible interest must be less than ROCE. Can calculate separate ROCE for different parts of the business, and direct money to the most profitable activities and away from the least profitable.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Return on Capital Employed Need to be careful with definitions as regards: Intangible assets revaluation of assets the date figures refer to Variations possible as regards; Overdrafts Current liabilities Use of average figure for capital employed Intangible assets
Background image of page 6
Profit Margin Definition: Operating Profit x 100% Revenue Low margins relative to other firms may be due to: Down market product range
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 06/07/2011 for the course MA 826 taught by Professor Loba,millet during the Spring '11 term at Kent Uni..

Page1 / 24

lecture_19_analysis_of_accounts_3 - MA826 19- Analysis of...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online