Financial Statement Analysis - Using Ratios to make Business Decisions

8 important questions on Financial Statement Analysis - Using Ratios to make Business Decisions

What is accounts payable turnover?

Businesses buy their supplies and raw materials on credit and take time to pay their accounts payable.

What does a high accounts payable turnover mean? And a low?

A high account payable turnover ratio means a business pays its suppliers very quickly, and a low payable turnover means a longer time period for payments to suppliers. Generally, a lower payable turnover is better than a higher one.

How can we also compute a companies leverage?

By computing the debt-to-equity ratio.
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What is the times-interest-earned ratio?

Also called interest coverage ratio. It related income to interest expense.This ratio measures the number of times operating income can cover interest expense and is also called the interest-coverage ratio.

Which profit measures exist in profitability analysis?

- Gross profit margin
- Operating profit margin
- Net profit margin

What is the implication with preference shares and ROE?

With preference shares, these should be excluded. This can also be calculated as followed:

What is Dividend Yield?

Dividend Yield is the ratio of dividends per share of stock to the share's market price. This ratio measures the percentage of a share's market value returned annually to the shareholders as dividends.

What is Book Value per Ordinary Share?

Book value per ordinary share is simply ordinary shareholders' equity divided by the number of ordinary shares outstanding. Ordinary equity equals total equity less preference equity.

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