2. What are ratios Ratios allow you to assess, the liquidity, solvency, efficiency and profitability of a company Ratios allow you to gauge a company’s performance over time or against the performance of other companies The financial information on the Balance Sheet allow ratios to be calculated
3. What do ratios tell you about a company Ratios allow you to assess the: Liquidity of a company or it’s ability to meet its current financial obligations with cash and the current assets it has Solvency of a company or it’s ability to meet it’s long-term obligations Efficiency of a company or how effectively it is operating. Efficiency, therefore is a good measure of profitability Profitability of a company or a definitive evaluation of the overall effectiveness of management based on the returns generated on sales and investment
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5. Quick or acid-test ratio – current assets minus stock divided by current liabilities
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8. Creditors’ turnovers – average purchases divided by average credit purchases or how long you take to pay suppliers for items bought on credit
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10. Net Profit Margin - net profit margin is the net profit (i.e. profit less costs except interest and tax) expressed as a percentage of sales
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12. Open your browser and type in the Learning Resources web address into the location bar …….. www.lr.mdx.ac.uk Select Electronic Resources
13. Make sure that you have set your institutional cookie Scroll down to the bottom of the Electronic Resources page and click on to the link Once you’ve clicked on to the link, a pop-up window will appear and then close automatically – you only need to do this once
14. Log into Athens Athens is an authenticating system thatallows students to access Middlesex University databases outside of the university Click on to the Athens link Log in using your IT user ID and your network password and once you have accepted the terms and conditions, you will be presented with a list of databases
16. About FAME FAME is a database that contains information about companies in the UK and Ireland They provide extensive support from their user guide
17. Extracting ratios from FAME Imagine that you are interested in comparing the ratios of companies in the clothing industry in London Making sure that you are in Expert Search, click on Activity/Industry Select Major Sectors and then Textiles…..
21. Comparing ratios across companies Imagine that you want to perform a current ratio analysis of a selection of companies for the last available year Click on List from the left hand selection of tabs Ignore the preset list of formats and select new Choose ratios from the Sections pull down list
26. A graphic representation of ratios Within Excel, there are options to represent your ratio information graphically Select Insert Highlight the rows and columns that you want to include and choose a chart