By Admin on March 24, 2009
Cash concludes cash on hand and demand deposits.
Cash equivalents are short-term, highly liquid investments that can be convertible into readily known amounts of cash, which are insignificant risk of value changing.
Bank overdrafts may be counted as a negative element in cash and cash equivalents, though longer-term bank borrowings are generally considered to be financing activities.
Cash and cash equivalents is the central concept in the preparation and interpretation of cash flow statements. The cash flow according to operation activities, investing activities and financing activities of cash and cash equivalents to prepare.
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By Admin on March 23, 2009
Trading profit margin = Trading profit(before interest, investment income and tax)/Sales revenue*100%
It can describe more accurately the trading performance. Trading profit is gross profit minus interest, investment income and tax.
It is equally useful and if the company does not disclose a cost of sales.It may be used to as a lieu of the gross profit percentage.
Here, please note the depreciation, which is open to considerable subjective judgement.
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By Admin on March 23, 2009
Gross profit percentage = Gross profit/Sales revenue*100%
Higher gross profit percetage often means good sign for the company. A company should keep enough gross profit percentage in its business.
Because gross profit = revenue – cost of sales, this means you should control the revenue and cost of sales at the same time. Such as: selling prices, sales mix, pruchase cost, production cost and inventory.
To improve the gross profit percentage involve a series of controlling measure.
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By Admin on March 23, 2009
Return on capital employed(ROCE) is known as the primary ratio because it’s the most important measure of profitability. The ratio shows how efficiently a business is using its resources.
Return on capital employed(ROCE) = Profit/Capital employed*100%
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By Admin on March 23, 2009
According to the analysis of income statement, as a manager or a master, you can make more measure to improve the performance of your company. Income statement includes: revenue, cost of sales, gross profit, other income, distribution costs, administrative expenses, other expenses, profit from operations, finance cost, share of profit of associates, profit before tax, income tax expenses, profit after tax, minority interest, net profit for the period.
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By Admin on March 22, 2009
Equity to assets ratio = Equity share capital plus reserves/Total assets*100%
The equity to assets ratio indicates the finance and profitability of the company.
It shows what proportion of total assets is financed by equity, and hence what proportion is financed by loans and non-equity shares.
A low equity to assets ratio means much of the business is financed by loans, or non-equity shares, whereas a high equiy to assets ratio means that most or all of the long-term capital is equity.
Under the same conditions, the more higher, the more better, it shows the good finance and profitability.
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By Admin on March 22, 2009
Current ratio = Current assets/Current liabilities
The current ratio measures the adequacy of current assets to meet short-term liabilities.
Traditionally, a figure of 1.5 is regarded as the norm. When you’re comprasing the current ratio, you should analyse different trade or business, such as: manufacturers, wholesalers or retailers. For example, supermarkets tend to have low current ratios because they need few trade reveivables.
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By Admin on March 22, 2009
Accounts payable payment period = Accounts payable/Credit purchases*365 days
The radio can be compared to previous years. A long period shows that it represent a source of free finance, or indictes the company is unable to pay quickly because of liquidity problemes.
If the accounts payable payment period is too long, you should note the company maybe lose out on worthwhile cash discounts, and the existing suppliers won’t continue supply.
As known, when you’re operating a company, that pay more quickly or pay more slowly is a double-edged sword. You must control it cautiously.
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By Admin on March 21, 2009
Accounts receivable collection period = Trade receivables/Credit sales revenue*365 days
Please note the trade receivables used may be a year-end figure or the average for the year. An increasing accounts receivable collection period is usually a bad sign as it suggests lack of credit control.
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By Admin on March 20, 2009
Inventory turnover ratio = Inventory/Cost of sales*365 days
Inventory turnover ratio shows the flow speed of inventory. An increasing number of days shows the inventory is turning over less quickly. And generally it is regarded as a bad sign:
Posted in Analysis and interpretation of financial statements | Tagged Inventory, Turnover | Leave a response
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