Analyzing financial indicators essay example

For example, Ben Bernanke head of the Federal Reserve made a prediction in that the United States was not headed into a recession. He further claimed that the stock and housing markets would be as strong as ever. As we know now, he was wrong. Paying attention to economic indicators can give you an idea of where the economy is headed so you can plan your finances and even your career accordingly.

Analyzing financial indicators essay example

Use whichever figure is given in the exam. Capital employed may be based on net book value NBVgross book value or replacement cost. An increase in ROCE could be achieved by: Increasing net profit, e.

Reducing capital employed, e. The ROCE can be understood further by calculating the net profit margin and the asset turnover: A high gross profit margin is desirable. It indicates that either sales prices are high or that production costs are being kept well under control. Net profit margin This is the net profit turnover less all expenses as a percentage of turnover.

A high net profit margin is desirable. It indicates that either sales prices are high or that all costs are being kept well under control. Asset turnover This is the turnover divided by the capital employed.

A high asset turnover is desirable. An increase in the asset turnover could be achieved by: EBITDA earnings before interest, tax and depreciation adjustment or earnings before interest, tax, depreciation and amortisation.

The two versions are entirely interchangeable. Liquidity measures The main Analyzing financial indicators essay example why companies fail is poor cash management rather than profitability so it is vital that liquidity is managed. A company can be profitable but at the same time encounter cash flow problems.

Liquidity and working capital ratios give some indication of the company's liquidity. Current ratio This is the current assets divided by the current liabilities.

The ratio measures the company's ability to meet its short term liabilities as they fall due. A ratio in excess of 1 is desirable but the expected ratio varies between the type of industry.

A decrease in the ratio year on year or a figure that is below the industry average could indicate that the company has liquidity problems.

Analyzing financial indicators essay example

The company should take steps to improve liquidity, e. Quick ratio acid test This is a similar to the current ratio but inventory is removed from the current assets due to its poor liquidity in the short term.

The comments are the same as for the current ratio. Inventory holding period This indicates the average number of days that inventory items are held for. An increase in the inventory holding period could indicate that the company is having problems selling its products and could also indicate that there is an increased level of obsolete stock.

The company should take steps to increase stock turnover, e. A decrease in the inventory holding period could be desirable as the company's ability to turn over inventory has improved and the company does not have excess cash tied up in inventory.

However, any reductions should be reviewed further as the company may be struggling to manage its liquidity and may not have the cash available to hold the optimum level of inventory.

An increase in the receivables collection period could indicate that the company is struggling to manage its debts. Possible steps to reduce the ratio include: Credit checks on customers to ensure that they will pay on time Improved credit control, e. A decrease in the receivables collection period may indicate that the company's has improved its management of receivables.

However, a receivables collection period well below the industry average may make the company uncompetitive and profitability could be impacted as a result. Payables creditor period This is the average period it takes for a company to pay for its purchases.

An increase in the company's payables period could indicate that the company is struggling to pay its debts as they fall due. However, it could simply indicate that the company is taking better advantage of any credit period offered to them.

A decrease in the company's payables period could indicate that the company's ability to pay for its purchases on time is improving. However, the company should not pay for its purchases too early since supplier credit is a useful source of finance.

Gearing ratios In addition to managing profitability and liquidity it is also important for a company to manage its financial risk. The following ratios may be calculated: Financial gearing This is the long term debt as a percentage of equity.

A high level of gearing indicates that the company relies heavily on debt to finance its long term needs.Technical analysis is widely used among traders and financial professionals, and is very often used by active day traders, market makers, and pit traders.

In the . Links to Full College Essay Examples. Some colleges publish a selection of their favorite accepted college essays that worked, and I've put together a selection of over of these (plus some essay .

Career Path for Accounting Studies It is always so hard to give the exact number of people who have majored in accounting, but one thing that I know is that the demography is very wide and large. How ratio analysis benefits the stakeholders of a company Ratio analysis is a type of financial information that always prepared to satisfy in some way the .

The components of bank financial statements and key ratios used in bank analysis The impact of differing accounting standards and policies (e.g. provisioning, asset valuation, securitization etc.) on the financial statements.

The Financial Analyst in these companies analyzes the financial health for the suppliers of a company (such as Apple) and provides the analysis to the financial manager, who can take decision for existing or new supply agreement.

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