summaryaccountingseminar

7/27/2019 summaryaccountingseminar

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A c c o u n

t i n g & F i n a n c i a l a n a l y s i s

1 The need for financial reporting

2 The balance sheet

3 The basic rules of accounting

4 The profit and loss account

5 The structure of a balance sheet

6 Financial flows

7 Key financial ratios

8 Different balance sheets

Basic principles of accounting & financial analysis



A learning Curve – Step by Step

S t e p b y

s t e p

Knowledge in

accounting

Time



T h e n e e d f o r f i n a

n c i a l r e p o

r t i n g

1 Sources of information

2 Management reports

3 Financial and legal requirements


2

3



What are indicators that things are going, or notgoing, as they should?

F i n

a n c i a l R e p o r t i n g

Financial reporting



Sources of financial information

F i n


• Why do we need financial information?

• What could be the sources of financial

information?

• What might be the difference between management

accounts and statutory accounts, and who

needs them?



F i n


Financial reporting

Car

Accelerator

Gear

Brake

Actual

Speed

Driver Speedometer

Desired

Speed

Control actions



F i n


Financial reporting

Business

Key

Performance

Indicators

Actual

Results

Manager Reports

Budgeted

Results

Control actions



Management requires control

Control requires knowing what

is happening

Knowing what is happening

requires reporting

Management reports

PERFORMANCE

MANAGEMENT

CONTROL

REPORTING F i n a

n c i a l R e p o r t i n g



Financial and legal requirements

F i n


Statutory • Annual

• After audit

• Legally defined

• Accurate

• Public record

Management • Monthly

• Promptly after the end

of the period

• Suited to individual

needs

• Estimate / Provisions

• Internal Use



The four functions of management :

Manage1

MEMO : MOPC

2 Organise

3 Plan

4 CONTROL F i n a


The need for financial reporting



What type of information do managers need ?

We really need various types of information:

Financial : % Gross Margin / Invested capital

Commercial : Total credit cards sold

Activities : Total calls made

F i n a




The annual accounts do not provide real time information,we need information reports which allow for timely controls

and allow for:

The comparison of results versus budget

Fast actions in order to improve performance

The assurance that the company is on the right track!

F i n a


What type of information do managers need ?



The three sources of financial information

There are 3 sources of financial information:

The balance sheet

shows what the company has and what it owes

The Profit and Loss Account or Income statementshows what the company earns or looses (results)

The cash flow report

the source and application of funds

B a s i c p r

i n c i p l e s o f a c c o u n t i n g



The three sources of financial information

The car dealer as a base for many examples.

Why? Simple process : purchase - show room (stock) –

sales

No production, we do not take into account the other activities, such as maintenance.

B a s i c p r

i n c i p l e s o f a c c o u n t i n g



The need for financial reporting

F i n

a n c i a l R

e p o r t i n g

A? A?

A?A?

A?

Profit

A?

Profit Leaks



The concept of a balance sheet

E x e r c i s e 1

What I HAVE What I OWE



E x e r c i s e 1


House 100

Car 10

Furniture 30

Equipment 20

Savings 10

Petty Cash 5

Adding up 175

Mortgage 65

Car loan 5

Equipment loan 10

Invoices 5

Overdraft 10

Adding up 95




E x e r c i s e 1


House 100

Car 10

Furniture 30

Equipment 20

Savings 10

Petty Cash 5

Total 175

Net worth 80

Mortgage 65

Car loan 5

Equipment loan 10

Invoices 5

Overdraft 10

Total 175




E x e r c i s e 1


House at

purchase price 70

Car 10

Furniture 30

Equipment 20

Savings 10

Cash 5

Total 145

Net worth 50

Mortgage 65

Car loan 5

Equipment loan 10

Invoices 5

Overdraft 10

The difference is a matter of evaluation of the assets


Total 145



E x e r c i s e 1


House at expected sales

price 120

Car 10

Furniture 30

Equipment 20

Savings 10

Cash 5

Net Worth 100

Mortgage 65

Car loan 5

Equipment loan 10

Invoices 5

Overdraft 10

The difference is a matter of evaluation of the assets


Total 195 Total 195



E x e r c i s e 1

Asset Valuation What I OWE

How do we value an asset? The simple answer is the

original cost LESS the depreciation BUT the alternativeis :

• realisable value

• replacement value

• useable or economic value (i.e. cost,which would

be incurred in any event)




E x e r c i s e 1


All this does not tell us much about our income or

expenses during a given period of time

This would be shown in other reports, i.e.

• The Profit and Loss report or Income statement &

• The Cash flow report




A c c o u n

t i n g & F i n a n c i a l a n

a l y s i s


2 The balance sheet




6 Financial flows






A c c o u n

t i n g & F i n a n c i a l a n

a l y s i s


The key elements of a balance sheet

Facts of a balance sheet and

management decisions


1

2

3




Assets = Have Liabilities = Owe

LONG TERMASSETS

SHORT TERM

ASSETS

OWN FUNDSAssets – Liabilities tothird parties

LONG TERM

DEBT

SHORT TERM

DEBT T h e b a l a n c e s h e e t



Can we draw a conclusion as to the viability of acompany by looking at its balance sheet on any

given time?

Would a balance sheet be sufficient?

Why do we pay so much attention to balance

sheets?

Are there rules for a balance sheet structure? T h e b a l a n c e s h e e t




answers

The balance sheet is a picture at any given moment of

the company :

The balance sheet is subject to interpretation

The balance is only meaningful after analysis:

- over various periods- in line with balance sheets of the competition

- in function of sector

- in function of the economic cycle

The balance sheet shows the financial health of a

company and its capacity to borrow in order to finance

its assets!

T h e b a l a n c e s h e e t




Fixed assets

Current assets

Equity

&

Reserves

LT debt

Current

debt

W

o r k i n g c a p i t a l


Fixed assets

Current assets

Equity & Res

LT debt

Current

debt

Our car dealer A bank



Fixed

Assets

Current

Assets

Equity &Reserves

LT Debt

ST Debt

The trend of a balance sheet

115105100

Year 1 Year 2 Year 3

100 85 75

T h e

t r e n d o f

a b a l a n c e

Ratio1

.81

.65

Debt

Equity



Facts (F) and decisions (D)

(5)

CURRENT ASSETS - Stock (D)- Debtors (D)

TREASURY (F)

OWN FUNDS

Equity (F)Reserves (D)Revaluations (D)

(1)

LT DEBT (F) (2)

OPERATIONAL DEBT (F)Suppliers (F)

Provisions (D)

ST BANK DEBT (F) (3)

FIXED (D)

Intang. Fixed (F/D)- Goodwill, Patents

Tang. Fixed (D)- Land- Buildings, equipment- Amortisation (D)

- Revaluations (D) (4)

ASSETS LIABILITIES

F a c t s a n d d e c i s i o n s



LT DEBT= FACTBorrowed funds less amountsrepaid

LT DEBTLoans (F)Investment credits (F)

Balance block 2





Most are facts, others such as

provisions are the result of an

assessment or future charges

(accruals)

OPS DEBT (F)Suppliers (F)Provisions (D)ST Bank debt (F)

Balance block 3



( ) d d i i ( )



The intangible assets are

subject to amortisation

The amount is a decision

INTANGIBLES FIXED

Goodwill (D)

Balance block 4



F t (F) d d i i (D)



A building is put on the

books at a purchase value and is

amortised over a period of time

in function of the rhythm of annual amortisation.

The method of amortisation is

a matter of decision

TANGIBLESFIXED

Land (F)Buildings (F & D)Equipment (F &D)

Balance block 4



F t (F) d d i i (D)



STOCK is based on purchase

price or net sales price

-When the sales price is deemed

lower than the purchase price astock depreciation needs to be

recorded :

depreciation for stock with a

low rotation - It is a decision

CURRENT ASSETSStock (D)

Balance block 5



F t (F) d d i i (D)



DEBTORS = FACT

However the principle of

prudence entails two

corrections for:-past due debtors

-uncollectable

= Management decision

CURRENT ASSETS

Debtors- past due (D)

Cash (F)- investments (D)- banks (F)- cash account (F)

Balance block 5



Th ff t f t d i i



The effect of an over-evaluation of current assets (with

unchanged liabilities)

The balance sheet …but in fact

F a

c t s a n d d

e c i s i o n s

The effect of a management decision

Th d t t t f fit



The over- or understatement of profits

Brand accounting

Changes in valuation methods

Changes in depreciation policy

Off balance sheet finance

Capitalisation of R & D

F a

c t s a n d d

e c i s i o n s

S K i t t b



Accounts over a long period, plus notes to the accounts, arelikely to provide the best basis for the analysis of the

financial position of a company

Accounting and financial analysis have their own

vocabulary Key elements allow for ratio-analysis

Summary – Key points to remember

T

h e b a l a n c e s h e e t

B i i i l f ti & fi i l l i



A c c o u n t i n g & F i n a n c i a l a n

a l y s i s


2 The balance sheet




6 Financial flows




B i i i l f ti



A c c o u n t i n g & F i n a n c i a l a n

a l y s i s

Double entry accounting

Depreciation versus amortisation

Cash and non-cash transactions

The four principles of accounting

Basic principles of accounting

1

2

3

4

A b l h t t b l



A balance sheet must balance

What would the opening balance sheet look like?

HAVE = Assets OWE = Liabilities

B a s i c p r i n c i p l e s

o f a c c o u n t i n g

A b l h t t b l



Example :

The balance sheet of a newly founded company

Assets Liabilities

Current Asset Equity

A balance sheet must balance



Double entry concept




LIABILITIES

Increases

= DEBIT

ASSET







ASSETSLIABILITIES

Increase

= CREDIT



The double entry concept




Petty Cash Equity

ASSETS LIABILITIES



The dual entry concept



The dual entry concept


o f a c c o u

n t i n g

ASSET Accounts

Increase Decrease

LIABILITY Accounts

Increase Decrease

The P & L Account or Revenue Account



The P & L Account or Revenue Account

P & L


o f a c c o u

n t i n g



EQUIPMENT

SUPPLIERS

ASSETS LIABILITIES

EQUITY

The company purchases equipmentfor 50 (without VAT)

CASH



o f a c c o u

n t i n g



ASSETS LIABILITIES

EQUITY

(1)

(1)(2) (2)

SUPPLIERSCASH

EQUIPMENT


The company purchases equipmentfor 50 (without VAT)


o f a c c o u

n t i n g




EQUITY

The company re-sells theequipment for 60 ! (without VAT)

CASH PROFIT & LOSS

DEBTORS

ASSETS LIABILITIES

EQUIPEMENT



o f a c c o u

n t i n g




EQUITY

DEBTORS

ASSETS LIABILITIES

(3)

(3)

(3)

CASH PROFIT & LOSS

EQUIPMENT


The company re-sells theequipment for 60 ! (without VAT)


o f a c c o u

n t i n g




EQUITY

DEBTORS

ASSETS LIABILITIES

(3)

(3)

(3)

(4)

(4)

CASH PROFIT & LOSS

EQUIPMENT


The company resells theequipment for 60 ! (without VAT)


o f a c c o u

n t i n g




EQUIPMENT

SUPPLIERS

ASSETS LIABILITIES

EQUITY

The company purchases equipmentfor 50 (inclusive of VAT at a rate of 25 % )

CASH


B a s i c p r i n c i p l e s o f a c c o u n t i n g




ASSETS LIABILITIES

EQUITY

(1)

(1)

SUPPLIERS

CASH

EQUIPEMENT


The company purchases equipmentfor 50 (inclusive of VAT at a rate of 25%)

VAT RECEIVABLE

(1)


o f a c c o u

n t i n g

(2)

(2)



ASSETS LIABILITIES

EQUITY

(1)

(1)

SALESCASH

DEBTORS


The company invoices a customer for a fee in theamount of 50 (inclusive of VAT at a rate of 25%)


o f a c c o u

n t i n g

VAT PAYABLE

(1)

(2)

(2)




ASSETS LIABILITIES

EQUITY

(1)

(1)

SALESCASH

DEBTORS


The company invoices a customer for a fee in theamount of 50 (inclusive of VAT at a rate of 25%)


o f a c c o u

n t i n g

VAT PAYABLE

(1)

(2)

(2)

(3)

(3)

Cash and non cash entries



EQUITY

We take a depreciation of an asset into account for 10

P & L Account

EQUIPMENT


ASSETS LIABILITIES

CASH


o f a c c o u

n t i n g




EQUITY

P & L Account

EQUIPMENT


ASSETS LIABILITIES

CASH


o f a c c o u

n t i n g

We take a depreciation of an asset into account for 10

Depreciation and Amortisation



• Depreciation

A decrease in value of current assets

stock

- spare parts

- accessories

- debtors

• Amortisation

A decrease in value of fixed assets (long term assets)

fixed assets

- land and buildingsplant and equipment

- renovation costs



o f a c c o u

n t i n g




The influence of a depreciation is a decrease in

current assets & the equity and reserves (debts

remain unchanged)



p




The influence of an amortisation is a decrease in

fixed assets AND the equity and reserves (debts

remain unchanged)



p

Methods of amortisation



A fixed asset with a value of 100.000 at 10 % per year

A fixed asset with a value of 100.000 at 20% per year

LINEAR

Amortisation 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000

ResidualValue 90000 80000 70000 60000 50000 40000 30000 20000 10000 0

DIGRESSIVE

Amortisation 20000 16000 12800 10240 10000 10000 10000 10000 960 0

Residual

Value80000 64000 51200 40960 30960 20960 10960 960 0 0

A m o r t i

s a t i o n

Amortisation



0

10000

20000

30000

40000

50000

60000

70000

80000

90000

1 2 3 4 5 6 7 8 9 10

Linear

Digressive

Accounting

Value

Time

B a s i c p

r i n c i p l e s

o f a c c o u

n t i n g

Cash and non cash transactions



F i n a n c i a l R

e p o r t i n g

When Profit and Cash Differ

Difference

P&L expense, no cash

outflowCash outflow, no P&L

expense

P&L income, no cash inflow

Cash inflow, no P&L income

Example

Depreciation

Payment of Creditor

Sale on credit

Debtors settle account

The four principles of accounting



p p g

Accruals:Each change needs to be recorded during the relevant period

Consistency:

The same logic needs to be followed over the periods of

accounting

Going Concern:

Accounting on the basis of a functioning company, in

opposition to a gone basis

Prudence

The financial situation has to be accurately and factuallyrepresented

MEMO : ACGP

F i n a n c i a l R

e p o r t i n g

The significance of financial management



g g

Financial management allows for the optimisation of the

use of working capital

It is a matter of management of the business cycle!

STOCKS

SALES

DEBTORS

TREASURY

SUPPLIERS

PURCHASE

F i n a n c i a l m a n a g e m e n t

Activity Ratios



y

The management of stock of spare parts

One of the management issues is the stock rotation, in this case we usetwo ratios:

The definition of the two ratios

1. Stock turn

Annual sales of spare parts at cost

Stock spare parts

2. Stock turn in days 365Stock turn

The utility of the ratio

This ratio indicates how often the stocks rotates on an annual basis

or alternatively how many days stock days the company has


Activity Ratios



The utility of the management of the working capital

Turn over parts 500.000

Gross margin 150.000

Stock 70.000

Stock rotation500.000-150.000

70.0005 times p.a.

Stock in days70.000 x 365

350.00073 days

Other computing method3655

= 73 days


y

Activity Ratios



The purpose of the spare parts management by means of

Ratios

Factors influencing the stock:

- The need to match inventory with customer requests

- The express order surcharge- Obsolescence

- The discounts on spare parts


y

Activity Ratios



Outstanding debtors in days

Outstanding debtors x 365

Turnover « with » VAT

Outstanding suppliers in days

Outstanding suppliers x 365

Purchases « with » VAT


y

The purpose of the debtors and suppliers management by

means of Ratios



sBasic principles of accounting & financial analysis



A c c o u n t i n g & F i n a n c i a l a n a l y s i s

1 The need for financial reporting2 The balance sheet




6 Financial flows7 Key financial ratios





T h e P & L

A c c o u n t

Expenses and profitsKey elements of a P & L

Direct and variable expenses

The concept of profit centres

1

2

3

4

Expenses and profits



A turnover generates expenses:

Fixed expenses are the result of the activity of the company.

For example:

Salaries

Rental

Training

Advertising

T h e P & L A

c c o u n t

The benefits of profits



Profits:

• reward shareholders with dividends

• reward shareholders with capital growth

• pay interest on loans

• provide protection for future business

• provide funding for additional fixed assets

• provide funding for additional working capital

• provide customer confidence

• protect the employment of the employees

T h e P & L A

c c o u n t

The benefits of profits



Profits do not necessarily mean cash!

There is often a time lag between earnings and cashinflows. Indeed :

Stock may be purchased on payment conditions and may

be sold and replaced before paying the supplier

Stock may be sold, the earnings accounted for, but the payment is made at a much later date

A spare part has been sold but had been paid to thesupplier already a long time ago T

h e P & L A c c o u n t

Key elements of a P & L



P & L N-1 EURO N

Turnover (1)

Purchased goods- Inventory

= Cost of goods sold (2)

Gross margin (3)=(1)-(2)

+ Other business related income

= Income from operations (4)

- Goods and services (5)

= Added Value (6)=(4)-(5)

- Personnel expense

- Other operational expenses

= Gross operating income

+ Financial revenues

+ Exceptional results= Gross total revenue (EBITDA)

- Amort., provisions, depreciations

= EBIT

- Financial expenses

- Taxes

= NET PROFIT

Exceptional

Operations

Investments

Financing

T


cash flow



N-1 EURO N

Net Result

+ Amortisation and provisions= Cash Flow

- Paid dividends (Shareholders)

- Repayment LT debt

= Net self-financing margin

T


The charges to the P & L



Net Result

T


Other

operational income

Gross

margin

Added

Value

Gross ops

profit

Profit beforetaxes

Goods

& services

Personnel -expense

Other opsexpenses

Amortisation

EBIT

Financialexpenses

Taxes

Result of

Operations

Financial

Income &

exceptional

Gross

Profit

Other income

Fixed and variable expenses



There are two types of expenses:

The fixed expenses

these expenses are incurred irrespective of the activities

or production process

Variable expensesfluctuate in function of the volume of production

T


The break-even point



There will be a point where production covers bothfixed and variable cost

This crucial point is called break-even and is the

point as of which profit is being earned

T


Break-even



VOLUME

€

Fixed costs

Variable costs

T


Break-even



VOLUME

€

Fixed costs

BREAK-EVEN

Variable costs

LOSS

PROFIT

T


The concept of a profit centre



T

h e P & L A c c o u n t Sales

Gross Profit

Variable Expenses

Direct Expenses

Department Profit

Sales

Gross Profit

Direct Expenses

Department Profit

Sales

Gross Profit

Direct Expenses

Department Profit

Sales Service Parts

Total Departmental Profit

Indirect Expenses

Operating Profit

Other Income (Expenses)

Total Company Net Profit

The P & L per profit centre



Reflects the structure of the organisation

Allows for a specificreporting per profit centre

Allows for educateddecisions

Adequate measures for performance improvement

Allows for a better allocation of resources

Could inhibit an overallapproach

Could encourageindependence

Could encourage internalcompetition

Could encourage the pursuit of department

proper goals

ADVANTAGES DISADVANTAGES

T


The link between the balance sheet and the profit andloss accountg



BALANCE

Fixed assets

AssetsCurrent assets

Reserves

LT Debt

ST Debt

P & L

Amortisation

Turn over Depreciation

Profit

Financial charges

Financial charges

B a s i c p

r i n c i p l e s

o f a c c o u

n t i n g

i sBasic principles of accounting & financial analysis



A c c o u

n t i n g & F i n a n c i a l a n a l y s i





6 Financial flows7 Key financial ratios





Fixed Assets

Land & BuildingsPlant & Equipment

Fixtures & Fittings

Company Vehicles

Intangible assets

Current AssetsStocks

Debtors

Work in ProgressPrepayments

Cash

Equity & ReservesShare Capital

Revenue Reserves

Capital Reserves

Long Term LiabilitiesLong Term Loans

Mortgages

T

h e b a l a n

c e s h e e t

Current Liabilities

Bank Overdraft

Creditors (inc Tax & VAT)

AccrualsShort Term Loans




Norms

There are certain basic principles such as:

LT Assets > LT Liabilities

ST Assets > ST Liabilities

LT Liabilities should finance:

- 100% LT assets- the permanent ST Assets

LT

ASSET

S

N.W.

LTDEBT

ST

ASSETS

ST

DEBT T

h e b a l a n

c e s h e e t

Long

term



Liabilities



Permanent

TemporaryOperating

Liabilities

Treasury

Suppliers

ST Bank

facilities

Permanent

liabilities LT

debt

Share

capital

T

h e b a l a n

c e s h e e t

Current

liabilities

Disposal

Working capital managementt



(2) Use of

Working capital

(3) Treasury

(1)Source of

Working capital

Fixed assets

Source of

working capital

Shares & Reserves

LT debt

Stock

Debtors

ST debt

Use of workingcapital

ST Bank debtCash

Treasury

W o r k i n g c a p i t a l m a n a g e

m e n t



tFinancial management



Treasury

Source of

Working

CapitalUse of Working

Capital

Maximise Minimise

The goal is to have a positive treasury

W o r k i n g c a p i t a l m a n a g e

m e n t

The definition of the working capital



The origin of the working capital

= the difference between equity & l.t. debt and l.t.assets

The use of working capital

= is the difference between current assets and current

liabilities

Treasury

= the difference between the origin of working capital and

the use of working capital

T h e w o r k i n g c a p i t a l



Summaryt



T h e s t r u c t u r e o f

a b a l a n c e

s h e e t

1. Quite a large number of elements of the balance sheet

are subject to judgement.2. The source of working capital and the use of working

capital relate to each other and determine the level of the

treasury

3. Net worth (equity and reserves) can be over- or undertstated.

i sBasic principles of accounting



A c c o u

n t i n g & F

i n a n c i a l a n a l y s




5 Financial flows

6 The structure of a balance sheet7 Key financial ratios


s i s




A c c o u

n t i n g & F

i n a n c i a l a n a l y s

The financing of assets

Liquidity

The financial flows

1

2

3

Business Growths



Business growth can take three basic forms:

• Increased profitability on current volume

• Increased volume on current profitability

• Increased profitability on increased volume

A c c o u n t i n g & F i n

a n c i a l a n a

l y s i s


a n c i a l a n a

l y s i s

The Need For Extra Fundings



To cover the effects of inflation and/or growthwe need extra funds to:

• Carry more stock

• Support more debtors

• Update/add to fixed assets

• Pay more staff


a n c i a l a n a

l y s i s

Growth Will Require More of Thiss



... but where will it come from?

Growth Will Require More of This...


a n c i a l a n a

l y s i s

Sources of Fundings



Internal

• Share Capital

• Reserves

External

• Long Term Loans

• Stocking Loans• Bank Overdrafts

• Working Capital Loan

• Venture Capital


a n c i a l a n a

l y s i s

The financial flows



The financial flows underline the significance of the

profitability of the operations and the financial managementof the company

The company should generate enough cash to:

Finance the investments :

repayment of loans and the financial charges

Finance the use of working capital

Pay out dividends and taxes :

Shareholders dividends

State taxes

F i n a n c i a

l f l o w s

y s i s




A c c o u n t i n g & F i n a n c i a l a

n a l y


2 The balance sheet




6 Financial flows



y s i s





n a l y

Key ratios

The link between the ratios

Trend analysis

Performance measurement

1

2

3

4

y s i s





n a l y

The analysis of a company financial statements is indertaken for

the purpose of extracting information related to:

•The company’s activities

•Profitability

•Efficiency

•Degree of risk

y s i s





n a l y

This is achieved by using ratios relating to key financial variables

Financial ratios

y s i s



Numerator

Denominator Denominator +

The concept of a ratio

A ratio is a fraction


n a l y

Financial ratios

y s i s



The concept of a ratio

A ratio is a fraction


n a l y

+

The financial ratios

E l f k f iy s i s



Examples of key performance ratios

Profitability ratios

Return on capital

Return on sales

Efficiency ratios

Sales / Fixed assetsStock / Total assets

Risk ratios

Current ratioDebt to equity

Stock market

Price to earnings Asset value per share


n a l y

Return on capital employed



K e y r

a t i o s

The definition of the ratio

Operating profit

Capital employed

The meaning of the ratio

° Capital employed is defined as fixed assets plus current

assets

° Gives an indication of the profitability of the company

= A high profitability could be the result of a high mark-upon goods sold and/or an efficient usage of assets

Return on sales



K e y r

a t i o s


Operating profit

Sales


° Gives an indication of the profitability of the company

= A high profitability could be the result of an efficient

production or distribution process

Sales on fixed assets



K e y r

a t i o s


Sales

Fixed Assets


° Provides an assessment on the efficiency of management

in using the company’s assets

Stock on total assets



K e y r

a t i o s


Stock

Total Assets


° The ratio assess the degree of stability in the stock figure

throughout the years.

Current ratio



K e y r

a t i o s


Current Assets

Current Liabilities


° Assess short-term liquidity and examines the ability of

the company to meet its short-term commitments.

Debt to equity



K e y r

a t i o s


Long-term debt

Shareholders’ equity


° This ratio is used to assess the company’s ability to meet

both interest and principal repayments on loans as they fall

due.

Price to earnings ratio (P/E)



K e y r

a t i o s


Current market Price

Earnings per share


° This ratio gives the number of years’ earnings

represented by the current price

° The P/E ratio is a mixture of current price reflecting

expectations about the future and historic profit for themost recent accounting period.

Asset value per share



K e y r

a t i o s


Net assets attributable to ordinary shareholders

Number of shares issued


° The result of this fraction is often compared with the

market value to see to what extend the current price is

supported or backed by assets

The significance of trend analysis



Ratio

Time

TREND

PEERS K e y r

a t i o s

Summary



A series of key ratios provide us a good indication of the

structure of the balance sheet, of the profit and loss account

and about the trend of the company’s performance

Ratios show either positive or negative correlations

The trend analysis allows for timely decisions and the

comparison of the company’s performance versus a peer

group

Ratios allow for standard deviations and the evaluation of

the relative performance of the company

K e y r

a t i o s

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