Toghrul Khalafov A4080865 togrul.khalafov@gmail.com Risk Management Report Bluehill Bank Written Coursework Assignment Ratio analysis is the best way of analysing the company’s financial wealth and position. It helps to understand the crucial financial figures of an entity pointing to weak and possibly risky parts of its finance. Using the results of the analysis managers can strengthen the financial position by determining and eliminating possible risks related to credits, operations and market fluctuations. One of the important cases that a company cares about is profitability. Undoubtedly it plays a great role in the overall performance of an entity and define the actions must be made to improve it. Being on of the indicators of profitability net margin indicates how well companies can convert their revenue into profit. According to the chart that shows changes over the period of 2008-2011 for three banks, Bluehill , HSBC and Deutsche, Bluehill Bank has a downward trend of net margin changes,from 36% in 2008 to 28.7% in 2011. Though there was a significant increase in revenues, impairment loses on loans and tax payments were increased enormously as well. That is why the net margin declined over the period but still remained the best among competitors that have only 20%,HSBC, and 12.44%, Deutsche Bank. In addition, the higher this ratio can be the better it will be for the entity. As a solution in this case managers should focus on impairment losses on
Profitability ratios are used to measure the overall efficiency of thebusiness, as well as management effectiveness. Examples of profitability ratios include the gross margin ratio and the net margin ratios.
Secondary information is collected for this case. This case study limited only one techniques of financial analysis that is Ratio Analysis and also taken a single company. Thus the conclusion of the analysis carried out in a professional manner will be able to correctly describe the evaluation of the company and to substantiate the user’s decisions.
To analysis financial statements there are various tools. Ratio analysis is one of them. In ratio analysis we establish relationship between two or more items of financial statements and derive some vital information about the business.
This measures the relationship between net profits and sales of a firm. The net profit margin is indicative of management’s ability to operate the business with sufficient success not only to recover revenues of the period, the cost of merchandise or services, the expenses of operating the business and the cost of the borrowed funds, but also leave a margin of reasonable
Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories,
Ratio analysis is a very useful tool when it comes to understanding the performance of the company. It highlights the strengths and the weaknesses of the company and pinpoints to the mangers and their subordinates as to which area of the company requires their attention be it prompt or gradual. The return on shareholder’s fund gives an estimate of the amount of profit available to be shared amongst the ordinary shareholders; where as the return on capital employed measures an organization 's profitability and the productivity with which its capital is utilized. Return on total assets is a profitability ratio that measures the net income created by total assets amid a period.
In addition to affecting profits by adjusting useful life and depreciation; key ratios will also be affected. The net profit margin can be influenced both ways to fit the purpose of business strategy. It could be increased to make it seem more profitable, or it can be influenced in a negative way to write off as much expenses as possible – if the year held disappointing results – in order to show next year more positively in comparison.
The paper illustrates that financial ratio analysis is an important tool for firm’s to evaluate their financial health in order to identify areas of weakness so as to institute corrective measures.
Return on net assets = Net Income in Statement of Operations / Net Assets in the Balance Sheet
Ratio analysis: Perform trend and ratio analysis on current and fixed assets, current and long term liabilities, owner’s equity, sales revenues, EBIT, net income, and earnings per share. Project these trends
Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories,
The Net Profit Margin in 2012 was 10.5% while in 2013 it was 66.6%. This increase in the Net Profit Margin can be attributed to the increase in net profits after taxes despite the fact that there was a slight decrease in revenues.
Operating profit margin figures in the table above show the return from net sales[13]. However profit margin ratios are high enough for the 3 years, there is a fall from 12.86% to 11.26% during 2011-12. Sales revenue increases with a higher rate than gross profit so there is a poor
Firms and Companies include ‘Ratios’ in their external report to which it can be referred as ‘highlights’. Only with the help of ratios the financial statements are meaningful. It is therefore, not surprising that ratio analysis feature are prominently in the literature on financial management. According to Mcleary (1992) ratio means “an expression of a relationship between any two figures or groups of figures in the financial statements of an undertaking”.
Ratio analysis is generally used by the company to provide some information on how the company has performed during that year, so that the parties involved including shareholders, lenders, investors, government and other users could make some analysis before making any further decision towards that particular company. As mentioned by Gibson (1982a cited in British Accounting Review, 2002 pg. 290) where he believes that the use of ratio analysis is such an effective tool to evaluate the company’s finance, and to predict its future financial state. Ratios are simply divided in several categories; these are the profitability, liquidity, efficiency and gearing.