interpretation of accounts ratio analysis. key areas for analysis- overview profitability ...
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Interpretation of Accounts
Ratio Analysis
Key Areas for Analysis- Overview
Profitability Liquidity Management IT (no ratios) Return on Capital For exam critical, you must explain
Profitability
Gross profit
Gross profit/sales
Gross mark up
Gross profit/cost of sales
Net profit
Net profit/sales
Use abc on P44 of study notes
Profitability
2007 2008
Gross Profit 3700/7700= 48% 5500/10000= 55%
Mark Up 5500/4500= 122%
3700/4000=92.5%
Net Profit 2670/10000= 26.7%
1480/7700= 19.2%
Liquidity
Current ratio Current assets/current liabilities Acid ration (Current ratios-inventory)/current liabilities
Liquidity
2007 2008
Current ratio 1140/3150= 36% 1300/2085= 62.4%
Acid Ratio 700/3150=22.2% 640/2085=30.7%
Management Ratios
Receivables days (Receivables/sales)*365 Inventory days (Inventory/ Cost of sales)*365 Payables days (Payables/cost of sales)*365 Working capital cycle Receivable days + inventory days – payables days
Management Ratios
2007 2008
Receivables days
(320/7700)365=15
(400/10000)365= 15
Inventory days (500/4500)365= 41
(600/4000)365=55
Payables days (715/4500)365=58
(700/4000)365=64
WC Cycle 15+41-58= (2) 15+55-64=6
Return on Capital
Return on capital employedGross profit/capitalNet profit/capital
Return on capital employed
2008 2007
Gross return on capital employed
5500/5000=110%
3700/3555=104%
Net return on capital employed
2670/5000= 53.4%
1480/3555=41.6%
Banking Ratios
Interest Cover Profit before interest/Interest Gearing Debt/Equity or Debt/(Debt+Equity)
Banking Ratios
2007 2008
Interest Cover 2500/20= 125 4250/80=53
Gearing (Debt/equity)
125/3430= 3.6% 500/4500= 11.1%
Gearing (Debt/debt+equity)
125/125+3430= 3.5%
500/500+4500= 10%
Industry Specific Ratios
Asset Profitability Net/Gross Profit/(Carry value of assets) Utilisation Number of billable hours % of hotel rooms occupied