f7課件19 interpretation_W

1、SubsequentEventIntroduction（財(cái)務(wù)分析）Level1Level 2optionalRatio analysis basic conceptYCategories of ratiosY2014/06 Q3 1YY2014/06 Q3 2YY2014/12 Q1YYReportYYLimitations of financial statementsYLimitations of interpretationtechniquesYRatio analysis basicconceptRatio analysis - IntroductionRatio analysis m

2、ay highlight unusual results or clarify trends, enabling various users of accounts to make informed decisions relating to the company.For ratios to be useful, comparisons must be made - on a year to year basis, or between companies. On their own they are useless for any sensible decision making.Ques

3、tion scenariosIn the exam you could be presented with the following types of interpretation scenario: Comparison with an entitys previous period financial statements Comparison with a similar entity Comparison with industry benchmark ratios.In most questions you would need to calculate stated or sel

4、ected ratios, often in the form of a report.In some questions, you would be given pre-calculated ratios for you to interpret.It must be stressed that ratio analysis on its own is not sufficient for interpreting company accounts, and that there are other items of information which should be looked at

5、, for example:The age and nature of the companys assets;Current and future developments in the companys markets, at home and abroad, recent acquisitions or disposals of a subsidiary by the company;any other noticeable features of the report and accounts, such as events after the reporting period, co

6、ntingent liabilities, a modified auditors report, the companys tax position, and so on.Youre a Champion!Thanks for staying with us. You have finished this task.Categories ofratiosCategories of ratios Profitability Liquidity Gearing Investors ratios.PROFITABILITY1 Return on capital employed (ROCE) =

7、PBIT%Debt + EquityPBIT = Profit before interest and tax. It is often referred to internationally as IBIT (Income before interest and tax)Debt + equity = Debt is long-term debt (generally non-current liabilities) + equity section of SOFP, representing the capital invested in the business. It is equal

8、 to Total assets less current liabilities (TALCL).2 Gross profit margin =Gross profitRevenue%3 Operating profit margin = PBI%Revenue4 Net asset turnover =RevenueTALCLTALCL = Total assets less current liabilities representing the net assets turned over.Can also be calculated as debt + equity.5 Return

9、 on equity = PAT and preferencedividendsEquity%LIQUIDITY1 Current ratio =Current liabilitiesCurrent assets2 Quick ratio (or acid test) = Current assets - inventoriesCurrent liabilities3 Inventory turnover/days = Cost of salesor Inventories 365 days *InventoriesCost of sales4 Receivables collection p

10、eriod = Trade receivables 365 days *Credit turnover5 Payables payment period =Trade payables 365 days *Credit purchasesWorking capital cycle* The working capital cycle includes cash, receivables, inventories and payables. It effectively represents the time taken to purchase inventories, then sell th

11、em and collect the cash. The length of the cycle is determined using the above ratios:Buy inventoriesInventory daysSell inventoriesReceivables daysReceive cashfrom receivablesPayables daysWorking capital cyclePay payablesGEARING1 Debt/equity = Interest bearing debt%Equity2 Debt/ (debt + equity) = In

12、terest bearing debt%Interest bearing debt EquityInterest bearing debt = long-term debt on which the company is required to pay interest. In some instances a persistent bank overdraft is classed as long-term debt.3 Interest cover = PBITInterest payableINVESTORS RATIOS1 Dividend yield = Dividend per s

13、hare%Share price2 Dividend cover = EPSDividend per share3 Price/Earnings (P/E) ratio =Share priceEPSYoure a Champion!Thanks for staying with us. You have finished this task.June 2014Q3QuestionStatements of profit or loss for the year ended 31 March:20142013$000$000Revenue150,000110,000Cost of sales(

14、117,000) (85,800)Gross profit33,00024,200Distribution costs(6,000)(5,000)Administrative expenses(9,000)(9,200)Finance costs loan note interest(1,750) (500)Profit before tax16,2509,500Income tax expense(5,750) (3,000)Profit for the year10,5006,500Statements of financial position as at 31 March:201420

15、13$000$000AssetsNon-current assetsProperty, plant and equipment118,00085,000Goodwill30,000 nil148,000 85,000Current assetsInventory15,50012,000Trade receivables11,0008,000Bank5005,00027,000 25,000Total assets175,000110,000Equity and liabilitiesEquityEquity shares of $1 each80,00080,000Retained earni

16、ngs15,00010,00095,00090,000Non-current liabilities10% loan notes55,000 5,000Current liabilitiesTrade payables21,00013,000Current tax payable4,0002,00025,00015,000Total equity and liabilities175,000110,000The following information is available:(i) On 1 January 2014, Woodbank purchased the trading ass

17、ets and operations of Shaw for $50 million and, on the same date, issued additional 10% loan notes to finance the purchase. Shaw was an unincorporated entity and its results (for three months from 1 January 2014 to 31 March 2014) and net assets (including goodwill not subject to any impairment) are

18、included in Woodbanks financial statements for the year ended 31 March 2014 .There were no other purchases or sales of non-current assets during the year ended 31 March 2014.(ii) Extracts of the results (for three months) of the previously separate business of Shaw, which are included in Woodbanks s

19、tatement of profit or loss for the year ended 31 March 2014, are:Revenue$00030,000Cost of sales(21,000)Gross profit9,000Distribution costs(2,000)Administrative expenses(2,000)(iii) The following six ratios have been correctly calculated for Woodbank for the year ended 31 March 2013:Return on capital

20、 employed (ROCE)105%(profit before interest and tax/year-end total assets less current liabilities)Net asset (equal to capital employed) turnover116 timesGross profit margin220%Profit before interest and tax margin91%Current ratio17:1Gearing (debt/(debt + equity)53%Required:(a) Calculate for the yea

21、r ended 31 March 2014:(i) equivalent ratios (all six) to the above for Woodbank based on its reported figures; and(ii) equivalent ratios to the first FOUR only for Woodbank excluding the effects of the purchase of Shaw.Note: Assume the capital employed for Shaw is equal to its purchase price of $50

22、million.(10 marks)(b) Assess the comparative financial performance and position of Woodbank for the year ended 31 March 2014.Your answer should refer to the effects of the purchase of Shaw.(15 marks)(25 marks)Answer(a) Note: Figures in the calculations of the ratios are in $million(i) 2014As reporte

23、d(ii) 2014Excluding Shaw2013FromquestionReturn on (year-end) capital employed120%18/(175 25)130% (18 5)/(150 50)105%Net asset turnover10 times 150/15012 times (150 30)/100116 timesGross profit margin220%33/150200% (33 9)/(150 30)220%Profit before loan interest and tax margin120%18/150108% (18 5)/(15

24、0 30)91%Current ratio Gearing108:127/25367%55/(95 + 55)167:153%Youre a Champion!Thanks for staying with us. You have finished this task.June 2014 Q3 -2Answer(a) Note: Figures in the calculations of the ratios are in $million(i) 2014As reported(ii) 2014Excluding Shaw2013FromquestionReturn on (year-en

25、d) capital employed120%18/(175 25)130% (18 5)/(150 50)105%Net asset turnover10 times 150/15012 times (150 30)/100116 timesGross profit margin220%33/150200% (33 9)/(150 30)220%Profit before loan interest and tax margin120%18/150108% (18 5)/(150 30)91%Current ratio Gearing108:127/25367%55/(95 + 55)167

26、:153%(b) Analysis of the comparative financial performance and position of Woodbank for the year ended 31 March 2014Note: References to 2014 and 2013 should be taken as the years ended 31 March 2014 and 2013 respectively.IntroductionWhen comparing a companys current performance and position with the

27、 previous year (or years), using trend analysis, it is necessary to take into account the effect of any circumstances which may create an inconsistency in the comparison.In the case of Woodbank, the purchase of Shaw is an example of such an inconsistency. 2014s figures include, for a three-month per

28、iod, the operating results of Shaw, and Woodbanks statement of financial position includes all of Shaws net assets (including goodwill) together with the additional 10% loan notes used to finance the purchase of Shaw.None of these items were included in the 2013 financial statements. The net assets

29、of Shaw when purchased were $50 million, which represents one third of Woodbanks net assets (capital employed) as at 31 March 2014; thus it represents a major investment for Woodbank and any analysis necessitates careful consideration of its impact.ProfitabilityROCE is considered by many analysts to

30、 be the most important profitability ratio.A ROCE of 120% in 2014, compared to 105% in 2013, represents acreditable 143% (120 105)/105)improvement in profitability.When ROCE is calculated excluding the contribution from Shaw, at 130%, it shows an even more favourable performance. Although this compa

31、rison (130% from 105%) is valid, it would seem toimply that the purchase of Shaw has had a detrimental effect on Woodbanks ROCE.However, caution is needed when interpreting this information as ROCE compares the return (profit for a period) to the capital employed (equivalent to net assets at a singl

32、e point in time).In the case of Woodbank, the statement of profit or loss only includes three months results from Shaw whereas the statement of financial position includes all of Shaws net assets; this is a form of inconsistency.It would be fair to speculate that in future years, when a full years r

33、esults from Shaw are reported, the ROCE effect of Shaw will be favourable.Indeed, assuming a continuation of Shaws current level of performance, profit in a full year could be $20 million. On an investment of $50 million, this represents a ROCE of 40% (based on the initial capital employed) which is

34、 much higher than Woodbanks pre-existing business.The cause of the improvement in ROCE is revealed by consideration of the secondary profitability ratios: asset turnover and profit margins.For Woodbank this reveals a complicated picture. Woodbanks results, as reported, show that it is the increase i

35、n the profit before interest and tax margin (120% from 91%)which is responsible for the improvement in ROCE, as the asset turnover has actually decreased (10 times from 116 times) and gross profit is exactly the same in both years (at 220%).When the effect of the purchase of Shaw is excluded the pos

36、ition changes; the overall improvement in ROCE (130% from 105%) is caused by both an increase in profit margin (at the before interest and tax level,at 108% from 91%), despite a fall in gross profit (200% from 220%) and a very slight improvement in asset turnover (12 times from 116 times).Summarisin

37、g, this means that the purchase of Shaw has improved Woodbanks overall profit margins, but caused a fall in asset turnover. Again, as with the ROCE, this is misleading because the calculation of asset turnover only includes three months revenue from Shaw, but all of its net assets; when a full year

38、of Shaws results are reported, asset turnover will be much improved (assuming its three-months performance is continued).LiquidityThe companys liquidity position, as measured by the current ratio, has fallen considerably in 2014 and is a cause for concern.At 167:1 in 2013, it was within the acceptab

39、le range (normally between 15:1 and 20:1); however, the 2014 ratio of 108:1 is very low, indeed it is more like what would be expected for the quick ratio (acid test).Without needing to calculate the component ratios of the current ratio (for inventory, receivables and payables), it can be seen from

40、 the statements of financial position that the main causes of the deterioration in the liquidity position are the reduction in the cash (bank) position and the dramatic increase in trade payables. The bank balance has fallen by $45 million (5,000 500) and the trade payables have increased by $8 mill

41、ion.An analysis of the movement in the retained earnings shows that Woodbank paid a dividend of $55 million (10,000 + 10,500 15,000) or 688 cents per share.It could be argued that during a period of expansion, with demands on cash flow, dividends could be suspended or heavily curtailed. Had no divid

42、end been paid, the 2014 bank balance would be $60 million and the current ratio would have been 13:1 (27,000 + 5,500):25,000). This would be still on the low side, but much more reassuring to credit suppliers than the reported ratio of 108:1.GearingThe company has gone from a position of very modest

43、 gearing at 53% in 2013 to 367% in 2014.This has largely been caused by the issue of the additional 10% loan notes to finance the purchase of Shaw.Arguably, it might have been better if some of the finance had been raised from a share issue, but the level of gearing is still acceptable and the finan

44、cing cost of 10% should be more than covered by the prospect of future high returns from Shaw, thus benefiting shareholders overall.ConclusionThe overall operating performance of Woodbank has improved during the period (although the gross profit margin on sales other than those made by Shaw has fall

45、en) and this should be even more marked next year when a full years results from Shaw will be reported (assuming that Shaw can maintain its current performance).The changes in the financial position, particularly liquidity, are less favourable and call into question the current dividend policy.Geari

46、ng has increased substantially, due to the financing of the purchase of Shaw; however, it is still acceptable and has benefited shareholders.It is interesting to note that of the $50 million purchase price, $30 million of this is represented by goodwill. Although this may seem high, Shaw is certainl

47、y delivering in terms of generating revenue with good profit margins.Youre a Champion!Thanks for staying with us. You have finished this task.Dec 2014Q1QuestionXpand is a publicly listed company which has experienced rapid growth in recent years through the acquisition and integration of other compa

48、nies. Xpand is interested in acquiring Hydan, a retailing company, which is one of several companies owned and managed by the same family.The summarised financial statements of Hydan for the year ended 30 September 2014 are:Statement of profit or loss$000Revenue70,000Cost of sales(45,000)Gross profi

49、t25,000Operating costs(7,000)Directors salaries(1,000)Profit before tax17,000Income tax expense(3,000)Profit for the year14,000Statement of financial position$000$000AssetsNon-current assetsProperty, plant and equipment32,400Current assetsInventory7,500Bank1007,600Total assets40,000Equity and liabil

50、itiesEquityEquity shares of $1 each1,000Retained earnings18,70019,700Non-current liabilitiesDirectors loan accounts (interest free)10,000Current liabilitiesTrade payables7,500Current tax payable2,80010,300Total equity and liabilities40,000From the above financial statements, Xpand has calculated for

51、 Hydan the ratios below for the year ended 30 September 2014. It has also obtained the equivalent ratios for the retail sector average which can be taken to represent Hydans sector.Return on equity (ROE) (including directors loan accounts)Net asset turnoverHydan471%236 timesSector average220%167 tim

52、esGross profit margin357%300%Net profit margin200%120%From enquiries made, Xpand has learned the following information:I. Hydan buys all of its trading inventory from another of the family companies at a price which is 10% less than the market price for such goods.II. After the acquisition, Xpand wo

53、uld replace the existing board of directors and need to pay remuneration of $25 million per annum.III. The directors loan accounts would be repaid by obtaining a loan of the same amount with interest at 10% per annum.IV. Xpand expects the purchase price of Hydan to be $30 million.Required:(a) Recalculate the ratios for Hydan after making appropriate adjustments to the financial statements for notes (i) to (iv) above. For this purpose, the expected purchase price of $30 million should be taken as Hydans equity and net assets are equal to this equity plus the