financialperformance财务分析

1、Financial performanceAppraisal of Company Accounts using Ratios1What is meant by interpretation?Looking at the accounts and the notes to the accounts as they areMaking a few simple calculationsMaking informed judgements2APPRAISAL OF ACCOUNTS1. Profitability - the ability of a firm to use its asset b

2、ase in order to increase the total assets.2. Solvency/Liquidity - This refers to the ability of a firm to pay off its short - term debts3. Efficiency - the efficiency with which the firm manages its current assets and current liabilities4. Capital structure - This assess the ability to meet long-ter

3、m financial obligations.3RATIO ANALYSIS COMPARATIVES ARE HELPFUL WITH PREVIOUS YEARS WITH BUDGETS & FORECASTS WITH SIMILAR COMPANIES WITH MACRO ECONOMIC CONDITIONS54Example 1: Cross sectional comparison1. Comparisons between entities which of the followingcompanies is the most profitable?ProfitNet a

4、ssetsCo. A000200500Co. B0001,00010,0003Return40%10%5Example 2: Time series comparison2.Has there been an increase or decrease in profitability from one year to the next?ProfitNet assetsPreviousyear0009008,000Currentyear0001,00010,0004Return11.25%10%6Profitability RETURN ON CAPITAL EMPLOYED (ROCE)Gen

5、erally some sort of measure of profit as apercentage of capital in a business: R.O. C.E.= PROFIT BEFORE INTEREST AND TAX / TOTAL ASSETS - CURRENT LIAB.67INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340T

6、axation890Profitaftertax3,450ABC PLC78INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,450ROCE=4380/33246=13.2%ROCE EXAMPLE89ProfitabilityPROFIT MARGINSGenerally some sort of %

7、 measure of profit from activity.GROSS PROFIT MARGIN (%)= GROSS PROFIT / SALESNET PROFIT MARGIN (%)= OPERATING PROFIT (PBIT) / SALES1010Gross Profit PercentageFactors negatively affecting this ratio:A decrease in sales.An increase in the purchasing price (perhaps as a result of changing supplier or

8、not taking advantage of discounts)A change in the selling price or effects of competition (in some cases companies mark down the price in order to dispose of slow moving or obsolete stock).11Gross Profit PercentageFactors negatively affecting this ratio:A change in the sales mix where lines which ar

9、e not as profitable are being carriedAn increase in shrinkage i.e. stock losses resulting from wastage, breakages or theft12Net profit marginThis ratio shows how profitable a business is after all expenses have been taken into account.Changes:1.Cost of sales increased2.Administrative expenses and di

10、stribution costs increased3.Sales strategy13INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,450EXAMPLE1114INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,40

11、0Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,450GPmargin=12400/34800=35.6%GP MARGIN EXAMPLE1215INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340

12、Taxation890Profitaftertax3,450GPmargin=4380/34800=12.6%NP MARGIN EXAMPLE1316LIQUIDITY RATIOS Liquidity refers to the ability of a business togenerate sufficient cash to pay its liabilities asthey fall due for payment. It is linked directly to the short-term solvencyof a business. A business goes bus

13、t when it cannot pay itsdebts (it becomes insolvent).1917CURRENT RATIO = TOTAL CURRENT ASSETS /TOTAL CURRENT LIABILITIES RELEVANCE TO CASH FLOW GUIDE TO ADEQUACY a magic figure? depends on realisation of stock and collection of debtors.2118INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossPr

14、ofit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,450ABC PLC719INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,4

15、50CR=6250/2459=2.54CURRENT RATIO EXAMPLE2220FACTORS NEGATIVELY AFFECTING THIS RATIO:A decrease in current assets (either stock, debtors, bank or cash)for instance, current assets may have been used to buy new fixed assets or repay debenturesAn increase in current liabilities (either creditors or ban

16、k overdraft)When assessing both the current and the quick ratios, look at the information provided within the question to consider whether or not the company is overdrawn at the year-end21LIQUIDITY RATIO(Acid test ratio or Quick ratio)= CURRENT ASSETS EXCLUDING STOCK /CURRENT LIABILITIES RELEVANCE T

17、O CASH FLOW GUIDE TO ADEQUACY a magic figure? may be excessively prudent as not all currentliabilities are due for immediate payment.2322INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profit

18、aftertax3,450ABC PLC723INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,450LR=(62502848)/2459=1.4LIQUIDITY RATIO EXAMPLE2424Solvency in general Many profitable firms become ins

19、olventGeneral rule of thumb: current ratio should be at least 1.5:1Acid test ratio should be at least 1:1Wide variations over different industries25Efficiency ASSET TURNOVER Generally some measure of what sales we getfrom some category of assets e.g. to see “how hard the assets are being worked TOTA

20、L ASSET TURNOVER (ratio) SALES / TOTAL ASSETS : 1 NET ASSET TURNOVER (ratio) SALES / (TOTAL ASSETS TOTAL LIABILITIES) : 11426INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,45

21、0EXAMPLE1527INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,450TATurnover=34800/35705=0.97TA TURNOVER EXAMPLE1628INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProf

22、it12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,450NATurnover=24800/326921.06NA TURNOVER EXAMPLE1729INVENTORY DAYS (TO SELL) Inventory turnover = cost of sales/ average inventory Days to sell inventory = (average inventory/ cost of sales

23、) x 365 days GUIDE TO ADEQUACY no magic number consider type of business and previous years2530INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,450ABC PLC731INCOMESTATEMENT000S

24、alesrevenue34,800Costofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,450Inv=2848/22400*365=46daysINVENTORY DAYS EXAMPLE2632INVENTORY DAYSA shorter time of inventory period is represents:1. a healthy sign as it indic

25、ates that the company is buying more stock, most probably as a result of selling more. (generally)2. an unhealthy sign as it can sometimes be a result of poor stock control. The company may be buying more stock as a result of stock being damaged, lost, stolen or wasted. (sometimes)To determine which

26、 of the above explanations is fitting, the accountant must compare the percentage increase in cost of goods sold with the percentage increase in sales33DEBTORS (or RECEIVABLES) COLLECTION PERIOD= (trade debtors/ credit sales) x 365 days GUIDE TO ADEQUACY depends upon terms of trade compare with prev

27、ious years problem of identification of valid figures fordebtors & sales2734INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,450ABC PLC735INCOMESTATEMENT000Salesrevenue34,800Co

28、stofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,450DCP=3262/34800*36534daysDEBTORS COLLECTION EXAMPLE2836FACTORS NEGATIVELY AFFECTING THIS RATIO:Longer payment period offered to encourage an increase in salesPoor

29、credit controlPoor invoicing systemPoor reminder systemLack of incentives offered to customers (i.e. Cash discounts)Increase in bad debts.37CREDITOR (or PAYABLES)PAYMENT PERIOD= (trade creditors/ credit purchase) x 365 days NB., when purchases figure is not available,use cost of sales as a proxy GUI

30、DE TO ADEQUACY depends upon terms of trade compare with previous years problem of identification of valid figures forcreditors & purchases2938INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890P

31、rofitaftertax3,450ABC PLC739INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,400Operatingexpenses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,450CPP=1607/22400*365=26daysCREDITOR PAYMENT PERIOD3040Factors negatively affecting this ratio:Paym

32、ent period may have increased for positive reasons, for instance more favourable payments terms offered by suppliersSuppliers do not have an effective invoicing or reminder systemA longer period means than companies can hold on to its money for longerHowever, a long payment period may indicate:Poor

33、cash flow position.Hurt relations with suppliers Discounts may loss41Capital structure All investments carry risk. we looked at short-term solvency as a business cannot continue if it is unable to pay its debts as they fall due. Here we look at the medium-term capitalstructure of a business and see

34、how this isrelated to the potential of risk to the equityshareholder (and the business in general).1342Capital structure CAPITAL GEARING : (Long-term debt x 100) / All finance* BENEFITS OF DEBT DISADVANTAGES OF DEBT1443INCOMESTATEMENT000Salesrevenue34,800Costofsales22,400GrossProfit12,400Operatingex

35、penses8,020Operatingprofit4,380Interestpaid40Profitbeforetax4,340Taxation890Profitaftertax3,450EXAMPLE XYZ1544GEARING EXAMPLELong-term loanDeferred taxation5005416454.5%GEARING EXAMPLEEQUITY FINANCENON-EQUITY FINANCELong-term loanDeferred taxationGearing(%) =1500/33462500541746GEARING AND INCOME EFF

36、ECT OF INCREASED / DECREASED PROFITSON HIGH / LOW GEARED COMPANIES. HIGH GEARING IMPLIES GREATER RISK LINKING FIXED AND VARIABLE OPERATINGCOSTS TO GEARING.1847THE IMPACT OF GEARINGCo A (low geared) and Co. B (high geared)2048THE IMPACT OF GEARINGCo A (low geared) and Co. B (high geared)2175% fall in operating profitleads to a 76.8% fall in EPS.49THE IMPACT OF GEARINGCo A (low geared) and Co. B (high geared)2275% fall in operating profitleads to a 76.8% fall in EPS.50THE IMPACT OF GEARINGCo A (low geared) and Co.