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B293 - Unit 6 - Coggle Diagram
B293 - Unit 6
Ratios used by
Investors
Earnings per share
Dividend yield
Return on shareholders funds
Dividend cover
Less risk averse
Lenders
Gearing
Current ratio
Interest cover
Acid test ratio
Debt ratio
More risk averse
Solvency = ability to serve long-term obligations
Liquidity
Ability to serve short-term commitments
Customers
Suppliers
Sometimes referred to as trade creditors
Expect
No hidden overdrafts
No large loan payments
High cash levels
Working capital
Current assets minus current liabilities
Cannot grow without
Shorter cycle = cash received sooner
Less cash in inventory, more to spend
Receivables collection period
Inventory days
Trade payables payment period
All interested parties
OPM
Asset turnover
ROCE
GPM
Financial information for key external stakeholders
Importance changes over time
Key to adapt
Mendelow's matrix (1991)
Power vs interest
Low interest, high power
Keep satisfied
High interest, low power
Keep informed
May seek help of those with power
Low interest, low power
Minimal effort
High interest, high power
Keep informed and satisfied
Stakeholders can move across grid
Often determines objectives of business
Investor relations
Strategic management responsibility
Investors demand attention due to importance
Ensure highest valuation
Provide best possible perception
May be handled by specific department
Operational reporting
Financial reporting
Other information sources
Press conferences
Road shows
Websites
Interviews
Analysts
Less reliable than financial statements
More up-to-date
Will compare
Those in other areas of same industry
Performance over time
Business to competitors
Interpretation of financial statements
Extracting meaningful information
Accounts cover specific period
Only analytical data
Some subjectivity
Analysts take common approach
Establish industry benchmarks and ratios
Evaluate performance through analyses
Assess business and accounting environment
Make forecasts to estimate
Growth
Future value
Three types of analysis
Vertical
Shows relationships of financial items to base amount
Statement of financial position
Statement of financial performance
For that period
Common sizing
Convert statements to common reference point
e.g. sales or total assets
Start with 100%
Every figure in statement is a % of total
Horizontal
Compares two financial statements
Establish trends over time
Review important figures
Company size less relevant
Ratio
Compares numbers with numbers
Show trends over time
Company size less relevant
Provide relationships between numbers in statements
Improve understanding