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Business Project

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on 3 May 2010

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Transcript of Business Project

Efficiency Ratio & Gearing Ratio Ratios that are typically used to analyze how well a business is doing (use its assets and liabilities internally) fixed asset turnover
sales to inventory
sales to net working capital
accounts payable to sales
stock turnover ratio
return on capital employed Stock Turnover (Inventory Turnover) WHAT?
-It is the rate at which a company’s stock is turned over.
-It measures how quickly a business uses or sells tis stock.
-It shows how many times during the year a business sells its stock.
internally=> managers
To evaluate how well a company coverts stock into revenues

Return on Capital Employed (Primary Ratios) WHAT?
-It is the ratio that indicates the efficiency and profitability of a company's capital investments.
-It compares the profit(return) with the amount of money invested(capital).
-It tells us how much profit we earn from the investments the shareholders have made in their company.
focus on year's profit => all stakeholders are interested in.
To assess corporate profitability
To make comparisions of performance outside the control no relation to the business's ordinary trading activities shareholder's funds + any long term loans In terms of FY2009 performance, the ranking of the 5 palm oil stocks on ROCE, from best to worst, is as follows: 1.First Resources
2.Wilmar International
3.Indo Agri
4.Kencana Agri
5.Golden Agri Activity Ratios higher => more profit earned quickly
declinig=> higher stock levels
a large amount of slow moving/ obsolete stock
a wider range of products being stocked
a lack of control over purchasing service industry analysts do not usually use banks
travel agents
transport operators... adopt just-in-time productionm techniques WHAT?
-ratio that compares the amount of capital raised from ordinary shareholders with that raised in loan.
-It must be carefully planned as it affects the company's capacity to maintain a uniform dividend policy during difficult trading periods.
-the interest on loans and dividends are fixed commitments, whereas the dividends for ordinary shareholders are not.
-the lower, the better
=> the company and the prospective investors.
-to analyse the capital structure of a business
-to assess whether or not a business is burdened by its loans. cost of sales = 30 euro
stocks=5 euro profit before tax and interest= 5 euros
shareholders'funds=15 euros
long term liabilities=5 euros Long-term liquidity formula long term loans from banks, certain preference shares and debentures shareholders' funds including reserves Fixed cost or interest/ dividend: $ 6,000,000
The value of shareholders’ funds including reserves: $ 15,000,000
for 2004 for 2005 profitability profit erricson company Overall Inventory turnover was improved slightly
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