Chapter 4: Interpreting Published Accounts
Part 1 of Chapter 4
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- Created on: 22-12-14 11:39
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- Interpreting Published Accounts
- Ratio Analysis
- Stages in ratio analysis
- 1. Identify reason for investigation
- 2. Decide on relevant ratios
- 3. Gather information required and calculate
- 7. Apply above process to measure actions taken in stage 6
- 4. Interpret the ratio
- 5. Make appropriate comparisons
- 6. Take action with the results
- Users of ratio analysis
- managers
- identify efficiency of firm and functional areas
- to plan ahead
- to control operations
- to assess effectiveness of policies
- employees
- find out whether firm can afford to pay higher wages
- see if profits are being allocated fairly
- government
- review success of its economic policies
- find ways of improving business efficiency overall
- competitors
- compare performance against rivals
- discover strengths and weaknesses
- suppliers
- know sort of payment terms being offered to other firms
- whether a firm can afford to pay
- customers
- know of future of the firm
- see if guarantees / after sales service is secure
- shareholders
- compare financial benefits of investment with other alternatives
- managers
- a method of assessing a firm's financial situation by comparing 2 sets of linked data
- allows a business to compare itself with other firms, taking into account differences in size or circumstances
- Stages in ratio analysis
- Profitability and Performance ratios
- ROCE (%)
- shows operating profit as a percentage of capital employed
- operating profit or profit before tax / total equity + non-current liabilities x 100
- ROCE (%)
- Liquidity ratios
- Current ratio
- current asset / current liabilities
- ideal current ratio is 1.5:1 to 2:1
- Acid test ratio
- liquid assets (current assets - inventories) / current liabilities
- Untitled
- Current ratio
- Ratio Analysis
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