Analysis and interpretation Flashcards
How do we calculate gross profit margin?
Gross profit/ revenue x 100
How do we calculate operating profit margin?
Operating profit/revenue x 100
How do we calculate return on capital employed?
Operating profit/capital employed x 100
Capital employed = equity +NCL
How do we calculate asset turnover?
Revenue/capital employed
How do we calculate inventory turnover?
Cost of sales/inventories
How do we calculate inventory days?
Inventories/cost of sale x 365
How do we calculate trade receivables period?
Trade receivables/revenue x 365
How do we calculate trade payables period?
Trade payables/cost of sales x 365
How do we calculate gearing?
Debt/Equity x 100
What are some reasons for changes in gross profit margin?
Changes to revenue caused by change in sales price, sales mix, new products, currency translation
Changes to cost of sales caused by change in purchase costs, production costs, accounting policy, currency
Sales increase due to discounts offered
What are reasons for changes in operating margin?
Same as gross profit margin
Significant one-off expenses
Relocation expenses
Research costs
Improving efficiency
What must we think about when calculating asset turnover?
When assets were acquired
What are assets used for
Are they working efficiently
How is return on capital employed calculated?
Operating profit margin x asset turnover
Operating profit/capital employed
What are some reasons for changes in return on capital employed?
Revaluation of NCA
Entering lease for NCA
Timing of acquisition of asset
Type of industry
Age of NCA
Why might a company have a higher number of inventory days than previous years?
Poor inventory management
Un-met sales forecasts
Marketing issues
What are possible reasons for a change in gearing ratio?
More/less debt - increase/decrease
Upward revaluation of NCA - decrease
Issuing share capital - decrease
Issuing redeemable preference shares - increase
Buy back shares - increase
Entering lease agreement - increase
What are some non-financial performance indicators?
Customer related - customer interaction rate
Employee related - retention, gender pay gap
Sustainability related - greenhouse gas emissions, water usage
Social related - return on social investment, diversity
