Training Courses

Introduction to Accounting Ratio Analysis

Category: Accounting

Course level: Introductory

In house

Audited accounts and the financial statements provide only a snapshot of a business. For a more detailed understanding of business performance, more detailed analytical tools are needed.

Identifying relationships between items in accounts and expressing that relationship in a useable form unlocks the full potential of accounting information.

This 3-hour course focuses on the major financial/accounting ratios and their application, revealing the relationships between various items of information within accounts. Their importance in establishing a trend analysis of key performance indicators is outlined in detail. The ratios help users of company accounts to get behind the figures on the face of a balance sheet, profit and loss account and cashflow statement to assess more precisely how a business is performing compared with previous years and with previous forecasts.

During the course the major financial ratios are divided into four main categories: profitability, liquidity, investors’ measures and stock market ratios. In each category the ways in which ratios compare and contrast information is covered in detail.

Objectives

By the end of this workshop, delegates will be able to:

  • understand the theory behind financial ratios
  • apply ratio analysis to financial statements in order to ascertain a more accurate view of a business’s performance
  • interpret financial statements in greater detail
  • plan for better business results in the future

Length

3 hours

Course Content

The rationale behind financial/accounting ratios

The use of ratios as a management tool

Analysis of profitability

Return on Capital Employed (ROCE)
Return on assets
Gross profit margin
Net profit margin

Analysis of liquidity

Current ratio
Acid test ratio (quick ratio)
Stock turnover
Credit given (debtor days)
Credit taken (creditor days)

Investors’ ratios

Gross gearing
Net gearing (debt/equity)
Interest cover

Stock Market ratios

Earnings per share
Price earnings ratio
Dividend yield
Dividend cover
Market capitalisation

This course would be suitable for:

  • Investment professionals
  • New entrants

This course would be suitable for these exams:

  • IMC
  • SII Diploma - Interpreting Financial Statements
  • UKSIP - Introduction to Investment
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