Assessing A Business- Ratios Flashcards
Why is the bank a stakeholder?
-want to know if you can afford to repay loans and bank overdrafts
Why are shareholders stakeholders?
-want to know if there is a profit and how much dividend they will receive
Why are consumers stakeholders?
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
Why are employees stakeholders
- want to know if their job is safe
- want to know if they can get a pay rise
Why would the C.E.O./Managerr be a stakeholder ?
- 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
Why isRevenue commissioner a stakeholder?
-want to know how much profit you made and how much tax you will pay
Why are suppliers/creditors stakeholders?
-want to know if the company can repay their debts to them
Definition - stakeholder
Parties that are interested in seeing how the company is doing
Eg. Bank, shareholders, consumers, employees, C.E.O., etc.
Why are competitors stakeholders?
They want to know how their company is better/worse than theirs
ROCE (what sector, what it stands for, formula)
- Profitability
- Return on Capital Employed
Net Profit ----------------- X 100 = % Capital employed
Gross Profit Percentage/ Gross Profit Margin
Sector and formula
Profitability
Gross Profit
————- X 100 = %
Sales
Net profit margin (sector and formula)
Profitability
Net profit
———- X100= %
Sales
Current ratio (working capital ) (Sector and formula)
Liquidity
Current Assets: Current Liabilities
Acid test ratio (sector and formula)
Liquidity
Current assets-Closing Stock: current liabilities
Rate of stock turnover (sector and formula)
Efficiency
Cost of sales
————– = ____times
Average stock
Average stock
Efficiency
Opening stock+closing stock
—————————— =
2
Solvency
Total assets: outside liabilities
Dividend policy
D./nd paid
———- x 100= %
Issued share capital
Profitability (definition)
Shows how successful the managers of the company were at gaining a profit
Liquidity
The ability of the company to pay it’s debts when they are due
Solvency
Ability for the business to pay off debts. A firm is ‘soveny’ when it has more current assets than liabilities
Dividend policy (definition)
How much dividend is paid to shareholders
Efficiency definition
Measures how well the assets of a company are being used
Overtrading when a company had a negative working capital (more liabilities than assets)
-when a company had a negative working capital (more liabilities than assets)
ROCE comment
Always compare to the ratio to the RISK FREE INVESTMENT of 4% (Ie. Interest on money saved in bank)
Net profit margin/percentage comment
-‘for every €1 in sales we make XX cent profit (the xx is the percentage in CENTS)
Gross profit margin comment
- For every €1 in sales we make XX profit
- BEFORE EXPENSES
- Net profit is a truer reflection of profitability than gross profit percentage
Current ratio
- for every €1 of debt we have XX to cover it
- ideal is 2:1
Acid test ratio comment
- for every €1 of debt we have XX to pay for it
- ideal 1:1
- truer reflection of liquidity than current ratio
Stock Turnover
- 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?)
Dividend paid comment
- same or increased
- for every €1 share the shareholders will receive X cent
- good/bad for shareholders?
Terms of reference opening line on a report assessing a business
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.
