1. Gabrielle Moran 11th September 2010
Ratio Analysis
Gabrielle Moran
11th September 2010

2. Around Christmas in 6th Year– depending?

3. Why prepare accounts at all?
Ascertain profit
Measure performance
Other people

4. Users Shareholders/Owners Employees Suppliers Revenue Commissioners
Managers
Lenders
Competitors

5. 5 aspects Profitability and efficiency Liquidity/Solvency
Working Capital
Gearing
Investment

6. Cross Reference Grid
Users vs Aspect
Why and what looking for

7. Each Ratio How to calculate (formula) What it tells us
Expected trends/norms
Compare with/ Relate to others?

8. © 2008

9. Profitability/Efficiency
© 2008
Potential Shareholders
Lenders
Shareholders
Management
Customers
Why?
What?
Profitability/Efficiency
Working Capital
Liquidity/Solvency
Gearing
Investment

10. CA CL Formula Ability to pay ST debts What it shows Expected Norms
© 2008
Working Capital CA CL
Formula
Ability to pay ST debts
What it shows
Expected Norms
2 : 1
Relate to
Acid Test
Investment

11. Three dimensions to topic
Calculating – Murphy
Interpretation – AAA, BB
Definitions – Little Book

12. General approach to part b
Calculate & recalculate if appropriate
Figures given from previous year – Be Aware
Comment on
Trend
Norms
Relation to other ratios
Relation to interest rates
Sector

13. Part C Don’t forget!!! Mini part B – giving advice
opportunity to buy share
To company
Discuss rising liquidity ratio is a sign of prudent management
Gross profit % changing explain

14. Methods for learning formulae
Daily test -- immunity
Dominos
Follow me
Bingo
Little Booklet (pass definitions)

15. Methods for tackling part (b)
Place mat
Tri Pie
Cross ref chart

16. Follow me ….

17. Current Ratio
Who has ……
Start Card

18. Creditors Days Current Assets Current Liabilities
(Average period of credit received)

19. Trade Creditors X 12 (or 365)
Credit Purchases
Dividend Yield

20. Debt/Total Capital Percentage
Dividend per Share
Market Price per Share
Debt/Total Capital Percentage
X 100

21. Debt Capital
Total Capital
Gross Margin
X 100

22. Gross Profit
Sales
DPS
Dividend per share
X 100

23. Return on Shareholders Funds
Total Ordinary Dividend
Number of issued ordinary shares
Return on Shareholders Funds

24. Debt/Equity Ratio Profit (after tax and preference divs)
Ordinary Shares plus reserves
Debt/Equity Ratio
X 100

25. Debt Capital : Equity Capital
Price Dividend Ratio
Debt Capital : Equity Capital

26. Market Price per Share
Dividend per Share
Net Margin

27. Acid Test
Net Profit before interest and tax
Sales
X 100

28. Current Assets – C. Stock
Current Liabilities
P/E Ratio

29. EPS (Earnings per share)
Market Price per Share
EPS (Earnings per share)
Stock Turnover

30. Cost of Sales
Average Stock ( )
Fixed Asset Turnover
(OS + CS) 2

31. Sales
Fixed Assets
Dividend Cover

32. Return on Capital Employed (RoCE)
Profit (after tax and preference dividends)
Total Ordinary Dividend
Return on Capital Employed (RoCE)

33. Mark-Up Profit before interest and tax
Shareholders Funds + LT Liabilities
Mark-Up
X 100

34. Debtors Days Gross Profit Cost of Sales
(Average period of credit Allowed)
X 100

35. Trade Debtors X 12 (or 365)
Credit Sales
Interest Cover

36. Operating Profit
Interest Charges
Earnings Per Share
(EPS)

37. I Have …… End Card Profit (after tax and preference dividends)
Number of Issued Ordinary Shares
End Card

38. Sequence Current Ratio Acid Test Creditors Days P/E Ratio
Dividend Yield
Debt/Total Capital %
Gross Margin
DPS
Return on Shareholder Funds
Debt/Equity Ratio
Price Dividend Ratio
Net Margin
Acid Test
P/E Ratio
Stock Turnover
Fixed Asset Turnover
Dividend Cover
Return on Capital Employed (RoCE)
Mark-Up
Debtors Days
Interest Cover
Earnings Per Share

39. Dominos ….

42. Bingo Students - Draw 3x3 grid Teacher – List 15 terms on board
Students - select 9 terms and create bingo card
Teacher – read out definition of terms
Students – cross out the appropriate terms when they match the definitions

43. Place Mat

44. Place Mat Draw the rectangle and 4 lines as shown
Each member of the group answers the question in their own section
Permission to scout
‘No 1’ reads their list – others tick or add as appropriate

45. Place Mat Permission to scout
Individually select the most important/relevant differences in your school
No 2 writes no 1’s main difference into the centre box; No 3 writes no 2’s etc or
group arrives at consensus as to the most important points

46. Place Mat
Agree on main points

47. No
Yes
© 2008
Perhaps