1 / 10

INTERNAL ASSESSMENT FINANCE/ACCOUNTING

INTERNAL ASSESSMENT FINANCE/ACCOUNTING. THREE DECISION AREAS ; INVESTMENT DECISION- WHAT ASSETS TO BUY FINANCING DECISION- WHAT IS THE BEST CAPITAL STRUCTURE OPERATING DECISION- HOW TO OPERATE THE ASSETS OF THE FIRM IN THE MOST EFFICIENT MANNER. RATIO ANALYSIS.

anka
Download Presentation

INTERNAL ASSESSMENT FINANCE/ACCOUNTING

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. INTERNAL ASSESSMENTFINANCE/ACCOUNTING THREE DECISION AREAS; INVESTMENT DECISION- WHAT ASSETS TO BUY FINANCING DECISION- WHAT IS THE BEST CAPITAL STRUCTURE OPERATING DECISION- HOW TO OPERATE THE ASSETS OF THE FIRM IN THE MOST EFFICIENT MANNER

  2. RATIO ANALYSIS • PROVIDE A PICTURE AT A POINT IN TIME • MEASURES STRENGTH AND WEAKNESS • CAN PROVIDE A COMPARISON WITH INDUSTRY NORMS • PROVIDES A COMPARISON WITH INDUSTRY LEADERS • NEEDS TO BE LOOKED AT OVER TIME

  3. TYPES OF FINANCIAL RATIOS • LIQUIDITY-MEASURES ABILITY TO PAY SHORT TERM DEBT • LEVERAGE - THE EXTENT OF DEBT IN THE CAPITAL STRUCTURE • ACTIVITY- HOW EFFECTIVELY A FIRM USES ITS ASSETS • PROFITABILITY- HOW MUCH VALUE DOES THE FIRM CREATE • GROWTH-MEASURES THE FIRM’S ABILITY TO MAINTAIN ITS ECONOMIC POSITION

  4. LIQUIDITY RATIOS • LIQUIDITY RATIOS CURRENT RATIO=CURRENT ASSETS/CURRENT LIABILITIES 1984 = 1.90 1989 = 1.99 1998 = 1.39 NESTLE, 1998 = 1.18 CAMPBELL’S, 1998 = .52

  5. LEVERAGE RATIOS DEBT TO ASSETS- TOTAL DEBTS/ TOTAL ASSETS(%) 1984 = 13.62 1989 = 13.99 1998 = 70.4.03 NESTLE, 1998 = 59.2 CAMPBELL’S, 1998 = 85.5 DEBT TO EQUITY- TOTAL DEBT/ EQUITY 1984 = .18 1989 = .23 1998 = 2.26 NESTLE, 1998 = 2.45 CAMPBELL’S, 1998 = .85

  6. ACTIVITY RATIOS TOTAL ASSET TURNOVER- SALES/TOTAL ASSETS 1984 = 1.80 1989 = 1.35 1998 = 1.30 NESTLE, 1998 = 1.27 CAMPBELL’S, 1998 = 1.19

  7. PROFITABILITY RATIOS NET PROFIT MARGIN- NET INCOME/ SALES 1984 = 5.74% 1989 = 7.07% 1998 = 7.66% NESTLE, 1998 = 5.98% CAMPBELL’S, 1998 = 9.86% RETURN ON EQUITY 1984 = 16.44%1989 = 16.12% 1998 = 32.7% NESTLE, 1998 = 18.6% CAMPBELL’S, 1998 = 75.5%

  8. GROWTH RATIOS EPS= NET INCOME/ NO. SHARES OUTSTANDING HERSHEYNESTLECAMPBELL’S 1998 2.38 3.48 3.83 5 YR. AVE. 1.69 3.14 2.80

  9. RETURN ON EQUITY EFFECTIVENESS X EFFICIENCY X LEVERAGE = RETURN ON EQUITY (SALES/ TOTAL ASSETS) X (NET INCOME/ SALES) X (TOTAL ASSETS/ EQUITY) = ROE HERSHEY, 1998 (000) (4435/3404) X (340/4435) X (3404/1042) = 32.7%

  10. PHARMACEUTICALS COMPANY 1998 1996/1995 Novartis .196 .167 Schering Plough .439 .213 Warner-Lambert .347 .105 American Home .257 .134 Merck .41 .20 Pfizer .38 .196 Watson .16 .278

More Related