Ratios

ROCE, ROE, PM, net PM, Asset Turnover, Interest Cover, Dividend cover, dividend yield, Payable days, receivable days, inventory days and gearing.

These should be applied to ascertain the underlying performance of an entity. hence if the entity acquired a subsidiary, you should apply the ratios as if they hadn’t acquired the subsidiary and compare to last year. However, must make comments on the acquisition and what it has done to the ratios. Same goes for discontinued operations. Apply the above ratios on continuing operations only and pass comment on the discontinued operation. Ratios are used to confirm the underlying performance and should not be distorted by ad hoc transactions (i.e. acquiring a sub, reorganization costs etc….)