Assessing A Business- Ratios

Question 1

Why is the bank a stakeholder?

Answer 1

-want to know if you can afford to repay loans and bank overdrafts

Question 2

Why are shareholders stakeholders?

Answer 2

-want to know if there is a profit and how much dividend they will receive

Question 3

Why are consumers stakeholders?

Answer 3

They will loose faith in a business that is struggling and will hesitate to shop in the business for fear of the business’s closing

Question 4

Why are employees stakeholders

Answer 4

• want to know if their job is safe

- want to know if they can get a pay rise

Question 5

Why would the C.E.O./Managerr be a stakeholder ?

Answer 5

• want to know what better decisions have to be made
• want to know if they are doing better than competitors
• want to know if there is any way of being more cost and profit efficient

Question 6

Why isRevenue commissioner a stakeholder?

Answer 6

-want to know how much profit you made and how much tax you will pay

Question 7

Why are suppliers/creditors stakeholders?

Answer 7

-want to know if the company can repay their debts to them

Question 8

Definition - stakeholder

Answer 8

Parties that are interested in seeing how the company is doing
Eg. Bank, shareholders, consumers, employees, C.E.O., etc.

Question 9

Why are competitors stakeholders?

Answer 9

They want to know how their company is better/worse than theirs

Question 10

ROCE (what sector, what it stands for, formula)

Answer 10

• Profitability
• Return on Capital Employed

   Net Profit  -----------------      X     100  =    % Capital employed

Question 11

Gross Profit Percentage/ Gross Profit Margin

Sector and formula

Answer 11

Profitability

Gross Profit
————- X 100 = %
Sales

Question 12

Net profit margin (sector and formula)

Answer 12

Profitability

Net profit
———- X100= %
Sales

Question 13

Current ratio (working capital )
(Sector and formula)

Answer 13

Liquidity

Current Assets: Current Liabilities

Question 14

Acid test ratio (sector and formula)

Answer 14

Liquidity

Current assets-Closing Stock: current liabilities

Question 15

Rate of stock turnover (sector and formula)

Answer 15

Efficiency

Cost of sales
————– = ____times
Average stock

Question 16

Average stock

Answer 16

Efficiency

Opening stock+closing stock
—————————— =
2

Question 17

Solvency

Answer 17

Total assets: outside liabilities

Question 18

Dividend policy

Answer 18

D./nd paid
———- x 100= %
Issued share capital

Question 19

Profitability (definition)

Answer 19

Shows how successful the managers of the company were at gaining a profit

Question 20

Liquidity

Answer 20

The ability of the company to pay it’s debts when they are due

Question 21

Solvency

Answer 21

Ability for the business to pay off debts. A firm is ‘soveny’ when it has more current assets than liabilities

Question 22

Dividend policy (definition)

Answer 22

How much dividend is paid to shareholders

Question 23

Efficiency definition

Answer 23

Measures how well the assets of a company are being used

Question 24

Overtrading when a company had a negative working capital (more liabilities than assets)

Answer 24

-when a company had a negative working capital (more liabilities than assets)

Question 25

ROCE comment

Answer 25

Always compare to the ratio to the RISK FREE INVESTMENT of 4% (Ie. Interest on money saved in bank)

Question 26

Net profit margin/percentage comment

Answer 26

-'for every €1 in sales we make XX cent profit (the xx is the percentage in CENTS)

Question 27

Gross profit margin comment

Answer 27

- For every €1 in sales we make XX profit - BEFORE EXPENSES - Net profit is a truer reflection of profitability than gross profit percentage

Question 28

Current ratio

Answer 28

- for every €1 of debt we have XX to cover it | - ideal is 2:1

Question 29

Acid test ratio comment

Answer 29

- for every €1 of debt we have XX to pay for it - ideal 1:1 - truer reflection of liquidity than current ratio

Question 30

Stock Turnover

Answer 30

- expect to have increased or stayed the same - high stock turnover= goods are sold more - comment on types of goods that are being changed (non perishable?)

Question 31

Dividend paid comment

Answer 31

- same or increased - for every €1 share the shareholders will receive X cent - good/bad for shareholders?

Question 32

Terms of reference opening line on a report assessing a business

Answer 32

This is a report comparing and commenting on the performance of ____ LTD, for the years 2015 and 2016 based on the information given by ____ LTD.