Interpretation of Accounts Hardy December 2010 Key Areas

Interpretation of Accounts Hardy December 2010

Key Areas for Analysis- Overview From question, 5 ratios!! Profitability Liquidity Management Return on Capital For exam critical, you must explain- draw from the question

Look at the question Manufacturing company Falls in share price, property values Impairment losses $6 m, charge to Cof. S $1. 5 m Investment losses $1. 6 m Redundancy $1. 3 m Increase in bank rate

Profitability Gross profit/sales 2009 2010 Gross Profit 10000/36000=27. 8% 4000/29500=13. 6% Gross profit (Severance & impairment) 10000/36000=27. 8% 4000/(29500 - 15001300)=15% Net profit 3500/36000=9. 7% (2100)/36000 Net profit (Severance & impairment) 3500/36000=9. 7% [(2100)+1500+1600+130 0]/36000=6. 4%

Liquidity Current ratio Current assets/current liabilities Acid ration (Current ratios-inventory)/current liabilities

Liquidity 2009 2010 Current ratio 4800/4600= 104% 6200/3400= 182% Acid Ratio 2900/4600=63% 4000/3400=118%

Management Ratios Receivables days (Receivables/sales)*365 Inventory days (Inventory/ Cost of sales)*365 Payables days (Payables/cost of sales)*365 Working capital cycle Receivable days + inventory days – payables days

Management Ratios 2009 2010 Receivables days (2800/36000)365=28 (2200/29500)365= 27 Inventory days (1900/26000)365= 27 (2200/25500)365=32 Payables days (2800/26000)365=39 (3400/25500)365=49 WC Cycle 28+27 -39= 16 27+32 -49=10

Return on Capital Return Gross Net on capital employed profit/capital

Return on capital employed 2009 2010 Gross return on 10000/(23000+5000 4000/21600=18. 5% capital employed )=35. 7% Net return on capital 3500/28000= 12. 5% employed Net return on capital 3500/28000= 12. 5% [(2100)+1500+1600+ 1300]/28000= 8. 2% employed

Banking Ratios Interest Cover Profit before interest/Interest Gearing Debt/Equity or Debt/(Debt+Equity)

Banking Ratios 2009 2010 Interest Cover 5500/500= 11 (1900)/600= Interest Cover 5500/500= 11 [(1900)+1500+1600+1 300]/600=4 Gearing (Debt/equity) 5000/23000= 21. 7% 4000/17600= 22. 7% Gearing (Debt/debt+equity) 5000/28000= 17. 9% 4000/21600= 18. 5%