Chapter 1: Financial management function (Ratios) Flashcards
Return on Capital
Employed (ROCE)
PBIT / TALCL x 100
Measures efficiency in
generating profits from all
capital employed (by both lenders + shareholders)
Return on
Shareholder Funds
Earnings / Shareholder Funds
Measures efficiency in generating earnings for shareholders from capital they have contributed
Gross Profit Margin
Gross Profit / Revenue x 100
Measures our ability to sell goods for more than they cost to make
Net Profit (Operating Profit) Margin
PBIT / Revenue x 100
Measures our ability to make an overall profit on goods sold
Asset turnover
Revenue / TALCL x 100
Measure how efficiently a company uses its assets
to generate sales
Total Shareholder Return
(Divi + change in price) / Price at start of year
Measures the total return on investment (based on income and capital growth) for shareholders
Divi = Div paid / total shares
Dividend Yield
Dividends per share / Share Price
If you purchased a share today, what % income return would you expect on your investment?
Earnings per share
(EPS)
PAT / Number of shares
The amount of earnings the company has generated for the shareholders on each share they hold.
P/E Ratio (Share Price/EPS)
Share Price / EPS
What is the market’s view of our future growth? A high P/E ratio suggests high predicted growth
Growth in Revenue, PBIT, PAT
Year on year, or geometric growth
To what extent is turnover growth leading to profit growth? How good is cost control?
Growth in EPS, DPS, share price
Year on year, or geometric growth
To what extent is earnings growth leading to dividend growth? How does this compareto share price moves?
Debt:Equity Ratio
Long term debt / Equity
What proportion of assets are funded by lenders vs shareholders (use market values if available)
Gearing
Long term debt / (Equity + long term debt)
What proportion of assets are funded by lenders vs shareholders (use market values if available)
Interest Cover
PBIT / Interest payable
How many times could the annual interest bill be paid with profits before interest and tax
Operational Gearing
Contribution / PBIT or Fixed Costs / Total Costs
To what extent are our costs fixed vs. variable?
Geometric growth calc
example - past 5y
n√(lastest figure/oldest figure) -1(to the power of n)
