Financial Analysis Management
MBA SEMESTER 1
MANAGEMENT SKILLS AND ENTREPRENEURSHIP
(STUDENT NAME)
STUDENT ID:
MODULE LEADER: DR. RAJENDRA KUMAR
ASSIGNMENT TITLE: BUSINESS PLAN
Table of Contents
Page No.
1.Hierarchy of Pyramids 3
1.1 ROCE 3
1.2 Leverage 3
Importance of Leverage 3
1.3 Return on Investment 4
1.4 Asset Turnover 4
1.5 Asset Leverage 4
1.6 Net Margin 5
2.The Key Investor Ratios 5
2.1 Dividend rate 6
2.2 Dividend Yield 6
2.3 Earnings Per Share (EPS) 6
2.4 Price Earnings Ratio (P/E Ratio) 7
3. Importance of Profitability and Liquidity in context of Business Survival 7
3.1 Profitability 7
3.2 Liquidity 8
3.3 Profitabilityv.s. Liquidity 8
4. Management of Working Capital 9
4.1 Cash 9
4.2 Inventory 9
4.3 Receivables 10
5. Financial analysis of Chrisitie 11
5.1 Assessment 12
5.2 Dividend Signaling 12
5.3 The Clientele Effect 13
6. Conclusion 14
References 15
Appendices 15
1. Hierarchy of Ratios – Pyramid of Ratios
The six core ratios, often described as the ‘Pyramid of Ratios’, indicate the financial stability of an organization. These ratios when set out in a hierarchy, form a pyramid with the ‘Return on Capital Employed’ (ROCE) sitting at the top. The ROCE shows the return for shareholders. There are other ratios which help understand the way a business operates, but the six core ratios explained below remain key ones for owners and managers to help monitor the financial performance of their business.
1.1 ROCE
The return that a business generates, i.e. net profit after tax is divided by equity i.e. the amount of money invested in a business. The ratio is usually expressed as a percentage.
1.2 Leverage
Leverage is measure of money invested by the owner (or in case of a company, owners) against that of
MANAGEMENT SKILLS AND ENTREPRENEURSHIP
(STUDENT NAME)
STUDENT ID:
MODULE LEADER: DR. RAJENDRA KUMAR
ASSIGNMENT TITLE: BUSINESS PLAN
Table of Contents
Page No.
1.Hierarchy of Pyramids 3
1.1 ROCE 3
1.2 Leverage 3
Importance of Leverage 3
1.3 Return on Investment 4
1.4 Asset Turnover 4
1.5 Asset Leverage 4
1.6 Net Margin 5
2.The Key Investor Ratios 5
2.1 Dividend rate 6
2.2 Dividend Yield 6
2.3 Earnings Per Share (EPS) 6
2.4 Price Earnings Ratio (P/E Ratio) 7
3. Importance of Profitability and Liquidity in context of Business Survival 7
3.1 Profitability 7
3.2 Liquidity 8
3.3 Profitabilityv.s. Liquidity 8
4. Management of Working Capital 9
4.1 Cash 9
4.2 Inventory 9
4.3 Receivables 10
5. Financial analysis of Chrisitie 11
5.1 Assessment 12
5.2 Dividend Signaling 12
5.3 The Clientele Effect 13
6. Conclusion 14
References 15
Appendices 15
1. Hierarchy of Ratios – Pyramid of Ratios
The six core ratios, often described as the ‘Pyramid of Ratios’, indicate the financial stability of an organization. These ratios when set out in a hierarchy, form a pyramid with the ‘Return on Capital Employed’ (ROCE) sitting at the top. The ROCE shows the return for shareholders. There are other ratios which help understand the way a business operates, but the six core ratios explained below remain key ones for owners and managers to help monitor the financial performance of their business.
1.1 ROCE
The return that a business generates, i.e. net profit after tax is divided by equity i.e. the amount of money invested in a business. The ratio is usually expressed as a percentage.
1.2 Leverage
Leverage is measure of money invested by the owner (or in case of a company, owners) against that of
References: * Block and Hirt. Foundations of Financial Management.6th edition.Irwin, 1992. * Brealey, Richard A. Principles of Corporate Finance. NY: McGraw Hill, 2000. * Brigham and Gapenski. Financial Management: Theory and Practice. 6th edition. Dryden Press, 1991. * Campsey and Brigham. Introduction to Financial Management.3rd edition. Dryden Press, 1991. * Emery and Finnerty. Principles of Finance with Corporate Applications.West, 1991. * Ross, Westerfield, and Jordan. Fundamentals of Corporate Finance.Irwin, 1991. * Bear, Larry A. and Rita Maldonado-Bear. Free Markets, Finance, Ethics, and Law. Upper Saddle, NJ: Prentice Hall, 1994. * Block and Hirt. Foundations of Financial Management.6th edition. Richard Irwin & Co, 1992. * Bowlin, Martin, and Scott. Guide to Financial Analysis. 2nd edition.McGraw-Hill, 1990. * Brealey, Richard A. Principles of Corporate Finance. NY: McGraw Hill, 2000. * Ehrhardt, Michael C. The Search for Value: Measuring the Company’s Cost of Capital. MA: Harvard Business School Press, 1994. * Keown, Arthur, J. William Petty, David F. Scott, Jr. and John D. Martin. Foundations of Finance: The Logic and Practice of Financial Management. 2nd ed. NJ: Prentice Hall, 1998. * Lewellen, Wilbur G., John A. Halloran, and Howard Lanser. Financial Management: An Introduction to Principles and Practice. OH: Southwestern College Pub., 1999.