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Business Performance Analysis (Part 2)

Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

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Page 1: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

Business Performance

Analysis (Part 2)

Business Performance

Analysis (Part 2)

Page 2: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

 

Profitability Ratios Calculation (1)

Profitability Ratios Calculation (1)

gross margin % = gross margin = sales - cost of sales (COS)

sales sales operating profit % = operating profit = sales - COS - other operating expenses sales

salesor profit beforeinterest and tax (PBIT) profit before tax % = profit before tax = operating profit +/- net interest (PBT) sales sales  net profit % = net profit = profit before tax (PBT) - corporation taxor sales salesreturn on sales (ROS)

Page 3: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

 

 return on investment (ROI) = operating profit _____ (pre-tax) or return on capital employed total assets - current liabilities (ROCE) % (usually averaged)    return on equity (ROE) = profit after tax__

equity

capital turnover = sales____ ________

average capital employed in year

Profitability Ratios Calculation (2)

Profitability Ratios Calculation (2)

Page 4: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

Efficiency Ratios Efficiency Ratios

Page 5: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

 

debtor days = trade debtors x 365 sales

creditor days = trade creditors x 365

cost of sales (or purchases) stock days = stock value_________ or stock average daily cost of sales in periodturnover

finished goods raw materialswork in progress average weekly average weekly raw average weekly dispatches material usage production 

Efficiency Ratios Calculation (1)

Efficiency Ratios Calculation (1)

Page 6: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

 

Efficiency Ratios Calculation (2)

Efficiency Ratios Calculation (2)

 stock weeks = total stock value_____

average weekly cost of sales (total COS for the year divided by 52) operating cycle (days) = stock days + debtor days - creditor days

operating cycle % = working capital requirement (stocks + debtors - creditors)

sales asset turnover (times) = sales __

total assets

Page 7: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

Liquidity Ratios Liquidity Ratios

Page 8: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

 

Liquidity Ratios Calculation

Liquidity Ratios Calculation

current ratio (times) = current assets__ current liabilities

acid test (times) = current assets - stocks_ or quick ratio current liabilities

 defensive interval (days) = quick assets______ (current assets – stocks)

average daily cash from operations

Page 9: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

Investment Ratios Investment Ratios

Page 10: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

 

earnings per share = profit after tax - preference share dividends or number of ordinary shares in issueeps (pence)

dividend per share = total dividends paid to ordinary shareholders

number of ordinary shares in issue  dividend cover = earnings per share

dividend per share 

Investment Ratios Calculation (1)

Investment Ratios Calculation (1)

Page 11: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

 

 dividend yield % = dividend per share

share price  price/earnings ratio = current share priceor epsP/E ratio capital expenditure to sales % = capital expenditure for year

sales capital expenditure to gross fixed assets % = capital expenditure for year___

gross value of tangible fixed assets

Investment Ratios Calculation (2)

Investment Ratios Calculation (2)

Page 12: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

Financial Ratios Financial Ratios

Page 13: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

Financial Ratios Calculation (1)

Financial Ratios Calculation (1)

 gearing = long-term debt equity + long-term debt debt equity ratio = long-term debtor leverage (D/E) equity

Page 14: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

Financial Ratios Calculation (2)

Financial Ratios Calculation (2)dividend cover (times) = earnings per

share (eps) dividend per share

interest cover (times) = profit before gross interest and tax gross interest payable

which way also be considered in terms of cash flow:

cash interest cover (times) = net cash inflow from operations + interest received interest paid

Page 15: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

 cash flow and cash ratios are becoming increasingly as important as profit and profitability ratios in the measurement of business performance there is no best way of evaluating financial performance and there are advantages and disadvantages in using earnings per share or cash flow as the basis of measurement

The Best Performance Measure – Cash or

Profit?

The Best Performance Measure – Cash or

Profit?

Page 16: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

Format 1 Profit and Loss

Account

Format 1 Profit and Loss

Account

The Advantages and Disadvantages of Using

Cash Flow as a Measure of Company Performance

The Advantages and Disadvantages of Using

Cash Flow as a Measure of Company Performance

Page 17: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

Format 1 Profit and Loss

Account

Format 1 Profit and Loss

Account

The Advantages and Disadvantages of Using

Earnings per Share (eps) as a Measure of Company

Performance

The Advantages and Disadvantages of Using

Earnings per Share (eps) as a Measure of Company

Performance

Page 18: Business Performance Analysis (Part 2). Profitability Ratios Calculation (1) gross margin % = gross margin = sales - cost of sales (COS) sales sales operating

Tomkins plc EBITDA for 1998 to 2002

Tomkins plc EBITDA for 1998 to 2002

earnings before interest, tax, depreciation and amortisation, EBITDA is now commonly used as a close approximation of a cash flow performance measure