Chapter 16 Flashcards
EPS
PAT after NCI / weighted average no of shares
Dividend yield
DPS / Market share price
Dividend cover
EPS / DPS
P/E ratio
Market share price / EPS
Asset backing
Equity / no of shares in equity
Average borrowing
Finance costs / LT + ST debt
Debt/equity
LT debt / equity
Interest cover
PBIT (inc investment in ass) / interest payable or finance cost
ROCE
PBIT / Net assets
Net assets = TALCL
Net assets = TALCL-def tax-inv in ass
Net assets = Equity + ST debt + LT debt
OR
Operating profit margin x asset turnover
ROE
PAT + pref div / equity (or ordinary) s/cap + reserves
Inventory days
Inventories/COS x 365
Receivables days
Trade Rec / credit sales x 365
Payables days
Trade payables / purch or COS x 365
The current ratio is calculated as total current assets/total current liabilities. It is used as a measure of a company’s ability to meet its financial obligations as they fall due.
What could reduce the usefulness of the current ratio as calculated, based on the financial statements at the end of the reporting period?
Current assets include a property that was classified as ‘held for sale’ at the beginning of the reporting period - the sale must normally be expected to take place within twelve months. It is possible that this asset has been classified incorrectly.
The company’s year-end is at a time of year when inventory levels are normally low - If the year-end coincides with the point at which inventory is at its lowest, this suggests that the business is seasonal and that the position at the year-end may not be representative of the ‘normal’ position during the course of the year.
What ratios do an investment in associate reduce comparability of (if one entity has ass and the other doesn’t)?
Profit before tax as a percentage of revenue
ROCE
Gearing
