Measuring the achievement of stakeholder objectives

Ratio analysis is often used by stakeholders to assess the performance of a company. Ratios are normally split into 4 categories : (a) Profitability important to assess managerial performance (b) Debt important to banks (c) Liquidity important to suppliers and customers (d) Shareholder investor ratios important to shareholders Profitability ratios include: ROC ! Profit from operations Capital employed ROC ! Profit from operations Re&enue Profit margin

" #$$% Re&enue Capital employed

.

" "

'sset turno&er

Note. ROC should ideally be increasing. (f it is static or reducing it is important to determine )hether this is due to a reduced profit margin or asset turno&er. (f both profit margin and asset turno&er are getting )orse then the company has a profitability problem. Profit from operations = before interest and tax. Debt ratios include: *earing ! +ook &alue of debt +ook &alue of e,uity (nterest co&er ! Profit from operations (nterest Liquidity ratios include: Current ratio ! Current assets 'cid .est ratio !

Current liabilities Current liabilities

Current . assets (less in&entory)

Shareholder investor ratios include: /i&idend yield ! /i&idend per share 0arket price per share arnings per share !

" #$$

Profits distributable to ordinary shareholders 1umber of ordinary shares issued

Price2earnings ratio !

0arket price per share P3

.he &alue of the P4 ratio reflects the market5s appraisal of the share5s future prospects the more highly regarded a company6 the higher )ill be its share price and its P4 ratio. 3ummary financial information for Robertson plc is gi&en belo)6 co&ering the last t)o years. Previous year Current year .urno&er 4768$$ 486$$$ Cost of sales #969$$ #86:$$ 3alaries and ;ages #:69$$ #:6<$$ Other costs =6<$$ >64$$ Profit before interest and tax 8,7 !," (nterest #6:$$ #6$$$ .a" :64$$ :68$$ Profit after interest and tax ",# ",7 /i&idends payable :6$$$ :6:$$ Shareholders$ funds %%,& %",7 Lon' term debt ##,( !, 1umber of shares in issue (?$$$) <6$$$ <6$$$ P4 ratio (a&erage for year) Robertson plc #>.$ #8.$ (ndustry #8.$ #8.: Re,uired Re&ie) Robertson5s performance using profit6 debt6 and shareholder in&estor ratios.