The method of financial ratios


Questions: Financial ratios. Profit margins and profitability. Performance indicators of use of funds. Indicators of market activity.

financial ratios

 

The reporting rate, as a rule, is quantitative. They characterize the volume, the size of the productive resources used (for example, cost of sales, the average payroll number of workers, payroll volume produced and sold products). In a market economy to assess the quality of the use of productive resources used relative performance. They are made up of quantitative indicators according to certain rules and dependencies between them. For example, to evaluate the performance of work is considered the relationship between the sales proceeds and the number of workers. The value of the coefficient shows how many rubles of proceeds from the sale of accounts per worker.

To evaluate the effectiveness of using payroll used indicator - zarplatootdacha which is the ratio between sales revenue and payroll. The value of the coefficient indicates how much revenue comes from one tenge wages. The higher the value of these coefficients, the more effective use human resources organization.

Method of financial ratios - the ratios of the financial statements, the definition of the relationship indicators. In the analysis must take into account such factors as:

- The effectiveness of the methods used planning;

- Reliability of financial reporting;

- The use of different methods of accounting in accordance with accounting policies;

- Diversification of other companies;

- Static coefficient is applied.

 

Profit margins and profitability

 

Profitability - a relative measure that determines the level of profitability. Profitability characterizes the efficiency of the enterprise as a whole, the yield of the various activities (production, commercial, investment); they are better than the profit, characterize the final results of management, because their value shows the ratio of the effect of cash or resource consumption. These indicators are used to evaluate the activity of the enterprise as a tool in the investment policy and pricing.

Profitability indicators can be grouped into several groups:

- Indicators characterizing production costs and return on investment projects;

- Indicators characterizing the profitability of sales;

- Indicators characterizing the return on capital and its parts.

Profitability of production activities (cost recovery) is calculated by dividing the profit for the amount of the cost of goods sold. The value of this ratio shows how much profit the company has with each tenge spent on production and sales. This ratio can be calculated for the whole company, its segments and product types.

Similarly, the return on investment is determined by dividing the profit in the amount of investment in this project.

Return on sales (turnover) is calculated by dividing the profit from the sale of goods (works, services) in the amount of proceeds from the sale of goods (works, services). This ratio characterizes the efficiency of industrial and commercial activity, determines how much profit a company with a sales tenge. This indicator is widely used in the market economy and can be calculated for the whole company and individual products.

Profitability (profitability) of capital determined by the ratio of profit to the average cost of all capital invested or its individual terms.

The level of profitability of industrial activity, calculated for the whole company depends on three main factors of the first order: changes in the structure of sales, its costs and average selling prices.

The level of profitability of individual products depends on changes srednerealizatsionnyh prices and unit costs. Potential for increasing profitability of the enterprise:

- An increase in the volume of sales;

- Price increases;

- Reducing the cost of goods (works, services);

- Improving the quality of products;

- Search for more profitable markets;

- Implementation of a more optimal time.

 

Performance indicators of use of funds

 

For generalizing the characteristics of effective use of fixed assets, the following indicators:

- The profitability of fund  (the ratio of profit to average annual value of fixed assets);

- Return on assets of fixed assets (the ratio of the value of production of the average annual value of fixed assets);

- Capital productivity of the active part of fixed assets (the ratio of the value of production the average annual value of the active part of fixed assets);

- Capital ratio (the ratio of the average annual value of fixed assets to the value of production for the period).

To improve the profitability of fund should:

- An increase in the return on assets of fixed assets;

- Increase the profitability of production.

To improve the return on assets of fixed assets must:

- Increase the share of the active part of fixed assets;

- Increase in the proportion of the existing equipment in the active part of fixed assets;

- An increase in capital productivity of existing equipment.

On the return on assets of the existing equipment is affected: changes in the structure of machinery and equipment; time change of machines and equipment; change in production equipment.

To change the operating time of machines and equipment affect: Full-day downtime, shift coefficient, vnutrismennyh downtime.

To change production equipment is affected by: the development of new equipment, modernization of equipment, depreciation of equipment, production technology, staff qualifications and motivation for their work.

 

Indicators of market activity

 

Investment attractiveness implies economic benefits from the investment of available funds in the securities of the joint-stock company, with minimal risk. It is assessed using indicators of market activity. Key indicators of market activity are shown in Table 3.

 

Table 3 - Indicators of market activity

 

indicator

interpretation of the indicator

Rate of return of equity

Characterizes the level of profit attributable to equity. The index is different for each company, we study the dynamics of a number of years.

Book value per common share

Reflects the value of shareholders' equity per one ordinary share.

Dividend payout ratio

Characterizes the share dividend paid on ordinary shares in the amount of net profit. Analyzed in the time series.

A ratio of the share capital of Company's net assets

Characterizes the equity interest in a company's net assets on a certain date. The higher the coefficient, the greater the security company's net assets.

The coverage ratio of dividends on preferred shares

Allows us to estimate the extent to which net income provides for the payment of dividends on preferred shares.

The dividend rate of return

Characterizes the dividend rate of return of one ordinary share.

The current rate of return

Characterizes the current rate of return of one ordinary share.

The net earnings per common share

Represents the amount of net income attributable to one ordinary share.

Payout ratio per common share

Shows the amount of dividends paid per one ordinary share.

 

On the basis of studies indicated in the table of indicators characterizing the market activity of the company, it is concluded on its investment attractiveness. Reliable and promising investment target is considered to be a public company with strong financial position, increasing sales and profits, with a high rate of net return on capital, with low financial market.

 

Questions for self-control

1. The value of financial ratios.

2. The method of financial ratios.

3. What is the profitability?

4. Name on which groups are divided profitability.

5. What is the profitability of production activities?

6. How is the profit margin?

7. How is the return on equity?

8. Name the potential for increasing the profitability of the enterprise?

9. What are the indicators of efficiency in the use of fixed assets?

10. How is the the profitability of fund

11. By what formula is calculated return on assets?

12. How is the capital intensity?

13. What factors affect the the profitability of fund?

14. What is meant by the investment attractiveness of the company?

15. What are the indicators of market activity of the company?

16. Which company should be regarded as a reliable and promising investment target?