Efficiency Ratios The efficiency ratio is used to measure how the company uses its assets and liabilities internally, these ratios to measure the performance in short term. • Accounts Receivable Turnover This ratio used to measure the firm's effectiveness in extending credit and in collecting debts. The receivables turnover ratio is an activity ratio measuring how successfully a In collecting its AR during the year, if the company has AR turnover 2 that means the AR turned over two times during the year. Accounts Receivable Turnover= Credit sales AR average (assume that 75% sales are credit) AVON= 9.1 ULTA= 41.1 REVLON= 4.12 • Fixed Asset Turnover, Reflecting how efficiently a company has used its assets to generate revenue, a higher ratio indicate of greater efficiency in managing and investing fixed-asset. Fixed Asset Turnover= Net sales/ net assets EVON= 1.63 ULTA= 1.9 REVLON= .77 • Inventory turnover Inventory turnover is a ratio showing how many times a company's inventory is replaced over a specific period of time, the higher ratio the more success is the company in selling its inventory.
Lonmin PLC’s percentage return on average assets (ROA) measures how effectively the average assets of a company are utilised to generate income or how profitable a company is relative to its total assets. This ratio illustrates how well management is using the company's total assets to make a profit. The higher the return, the more efficient management is in utilizing its asset base. The ROA ratio is calculated by comparing net income to average total assets, and is expressed as a percentage. Lonmin PLC’s percentage return on average assets followed a similar pattern as their percentage return on average equity over the 5 year period beginning with a negative return in 2009, gradually increasing until 2012 where there is a significant fall and a recovery in 2013.
It is used to measure a company's pricing strategy and operating efficiency of a firm .During the last four years Operating profit ratio is highest in FY 2015-16 at 21.06% and the Company has posted highest profit in that year . Thus, this financial year can be termed as the best year for the company in terms of operating profit ratio for the last four years .This ratio has increased gradually in the years thereby indicating increased operating profit Company’s operating margins increased from 18 to 21% margin during the same period. Operating EBITDA increased by 17.5% At 22.4% of net sales and other operating income, the operating EBITDA margin. Operating profits grew by 17.9% The Company’s operating profit (PBT before other income) also increased due to increased sales and increased operating efficiency . .
These ratios are calculated by using the formula we gave you earlier to determine the costs and benefits of the training conducted. Here are some examples of typical measurements that could be used to convert the benefits of training to a rand value. Once these benefits have been converted to a rand value, the ROI formula is used to calculate the return on the training investment. ROI is presented as a percentage, for instance 87%, which means that the training added value to the organisation. STEP 9: EVALUATE TRAINING IMPACT Evaluating the impact of training means deciding how the organisation can use the results of the ROI calculations.
ROA, is a financial ration that shows the company ability to generate profit out the used asset. Murniati (2016) found the higher the ROA of a company, the higher the value of the company 's assets and lead to higher stock prices as much in demand by investors. ROE, measures the ability of a company to generate profit on a certain equity. Although, there is no clear link between ROE and stock prices, Rotblut (2013) believe that it works effectively when combined with other indicators. He explained that ROE provide a quantitative measurement of management 's effectiveness at generating profits from a company 's net assets which lead to better trust on the company capability to generate profit and consequently higher demand on its share.
Measuring Profitability Ratios Profitability ratios measure a company’s ability to use its assets efficiently to produce profits. These ratios provide users of financial information with useful data such as how much net income is generated from each dollar of revenue and how much net income is generated per share of stock. Return on Sales
So, it is not good for company AVERAGE GROSS BLOCK (%) REVENUE/AVG NET FIXED ASSETS (%) 6.29 5.32 GOOD It is said to be good because organization meets its net fixed assets with its revenue. This is nothing but finding fixed asset turnover ratio AVG TOTAL ASSETS (%) 1.24 1.24 GOOD As avg total asset ratio is maintained constant without any depreciation or decrease in its value. OPERATING REVENUE (%) 17.8 20.6 RISK Operating income is important as it is an indirect measure of efficiency. Higher the operating income more is the profit for a company. As a value got decreased company is in risk position.
Net present value has the component of discount rate in which can determine the expected rates of returns by identifying costs related to financing the investment. The method of valuation is calculated by discounting future net cash flows from the investment of the projects required rate of return. The initial amount of the investment and then subtracted in the calculation. The formula is expressed below: The internal rate of return (IRR) is a vital resource within the capital budgeting process as it is an important phase in the evaluation scope. The internal rate of return is used in the assessment of potential investment profitability.
Debt / Equity The debt to equity ratio is a measure of the relationship between the shareholders equity and debt used to finance the company’s assets. The lower this figure the more independent a company is from debt when it comes to financing the company. The industry in which the company operates also affects the way the ratio is interpreted. In the case of Sappi the debt to equity ratio increased from 1.23 in 2009 to 1.27 in 2013. This change show their debt increased to finance the company.
It measures the ability of the company to pay their current liabilities with their current assets. By this ratio, it also measures the liquidity of the company and bank is interested in this ratio. ABC Company is not doing well as their working capital is too low and will