7 MAIN CATOGARIES FINANCIAL RATIOS

7 MAIN CATOGARIES FINANCIAL RATIOS

Good day, everyone,

To compare and measure the financial health relationship of an organisation, the financial ratios are developed and used as a yardstick to ascertain its financial position and performance. Here, I will only discuss on what are the financial ratios and its meaning. 

1. LEVERAGE FINANCIAL RATIO

Reflects the percentage of a company’s capital structure that is made up on debt or liabilities owed to external parties, other than shareholders. It tells you the relationship between the internal fund and external debts. This ratio is computed by simply dividing the total debts of the firm by its net worth or total assets.

2. Liquidity Financial Ratios

They are used to judge a firm's ability to meet short term obligations, without disposing its long term assets. The higher the ratio, the greater the ability of the firm to pay its bills. The general and frequent used of these ratios are as follow:-

a. Current Ratio = Current Assets / Current liabilities

b.  Acid-Test Ratio = Current assets less Inventories / Current liabilities

3. Operating Financial Ratios

Reflect the efficiency of the company’s operations in utilizing its resources. This comprise of Inventory Turnover (in term of days); Accounts Receivable Turnover (in term of days); Accounts Payable Turnover (in term of days) and Cash Conversion cycle etc.

4. Profitability In Relation To Sales Financial Ratios

Tell us the profit of the firm relative to sales after deducting the Cost of Good Sold. Here, it indicates the efficiency of operations. Generally, a firm with high gross profit margin is much easier to survive when its operating environment change to its disfavour comparative to those who have razor-thin margins. 

5. Profitability In Relation To Investment 

Relates to investments. One of these measures is the rate of return on common stock equity. This ratio is computed by simply dividing the Net profit after taxes less Preferred stock dividend by its net worth less Par value of preferred stock.

6. Coverage Ratios

Are designed to relate the financial charges of a firm to its ability to service them. One of the most traditional of the coverage ratios is the interest coverage ratio, that is the ratio of earnings before interest and taxes for a particular period to the amount of interest charges for the same period.

7. Solvency Financial Ratios

These financial ratios indicate the chances of a company going bankrupt. The main purpose of this exercise is to ensure that a company is not in danger of going under anytime soon. 

Note that the above yardsticks are frequently used as a ratio, or index, relating two pieces of financial data to each other. You may compare a present ratio with past and expected future ratio for the same company. By doing so, you can determine whether there is an improvement or a deterioration in the firm's financial condition and performance over time.

Trust the above discussion has given you a clear understanding of today's topic. 

Look forward to seeing you again,

James Oh

Skype me at james.oh18

HOW TO HAVE QUICK VIEW OF THE FINANCIAL STATEMENT

Hi Folks,

This article is written with the intention to give a guide as how to have a quick view of a company’s Financial Statements. This will make it easy to discuss with the Financial communities on the financial issues of a company.

When we talk about Financial Statements, what we are referring to is the Company’s Report and Accounts, usually found on the website of listed public companies.

1. The Auditors Report

– should be the first quick check.

This is usually found at the front of the Accounts and it has been drawn up in accordance with Generally Accepted Accounting Policies so as to give a 'true and fair' view of its financial performance. Watch out for any ‘qualifications’ which could highlight any financial problems

2. Principal Activities

Take a quick look at the Directors' report as what are the company's principal activities and the industry it is involved in. This gives you an overall view of the company and its industry where you should focus on.

4. Sales – or Turnover, Revenue.

Reflected on the Income Statement. Note its historical trend and any significant fluctuation; and the cause, if applicable.

5. Profitability 

The Gross Profit and Operating Profit, both before and after tax, will suggest whether they are selling above their costs. Whereas the percentages against their sales will give you the idea whether its profitability is increasing or declining. As such, the trend analysis may give you a good basis to predict its forecast. However, bear in mind that the historical trend will not guarantee its future performance.

6. Return on Capital Employed (ROCE)

Suggesting the return from what the company have invested in. The Capital Employed basically made up of Shareholders Funds (Share Capital plus Reserves such as retained profits or less Accumulated Loss whichever is applicable).

ROCE is found by dividing the Operating Profit by the Total Capital Employed or Total Assets or Net Assets. This percentage indicates to you whether its return is lower or above the interest rate.

7. Working capital position

Take a quick look of its ratio by dividing its current assets against liabilities. This will give us its liquidity position or the overall situation, i.e. stock, debtors and creditors. Its historical trends will suggest to you whether its liquidity position is improving or declining, an idea of its management efficiency to a certain extent. Above all, its cash flow and whether it able to pay its bills when due.

8. Retained profits / Accumulative Loss

The cumulative bottom line. Retained profits will be the surplus to its shareholders' fund whereas the accumulative loss will reduce its shareholders' fund. The former will allow the company to distribute out through dividend or bonus share and not the latter. In short, it represents a company's cumulative profits after dividends from the time of its inception. In this sense, it is a residual.

9. Gearing

The gearing ratio reflect the relationship of its debt to equity or total capital employed or total assets. It indicates to you as how many times of its debts against the capital and also the interest expense the company has to bear. As such, it give rise to the situation that it will have adverse impact should the interest rate is on the increasing trend. If the ratio is at high side, they will be answerable to the lenders. However, if it is at the low side, the question arises whether they should borrow more to invest.

10. Notes to the Financial Statements

Usually find at the back of the statement, It is rewarding and revealing to take a quick look at its Significant Accounting Policies. Look exactly at what type and nature of assets the company has, both fixed and current ; long and short term liabilities as well. Directors Remuneration is of interest and other key mandatory expenses will also be found here. All these notes will usually reference  to the items in the respective Income Statement and Balance Sheets.
Trust the above discussion may be used as a good checklist or guide as how to have quick view/ Bird eye's view of any Financial Statements.

Please share your feedback so as to make it better. Thanks and stay tune as I going to discuss in more depth.
James Oh

Skype me at james.oh18

5 WONDERFUL BENEFITS OF NETWORKING

5 WONDERFUL BENEFITS OF NETWORKING

Further to my previous article, NETWORKING IS WEALTH, today I am going to dwell with its concept and its benefits in more details. To read it, click at the title of this article.The most fundamental question arises here is "What is Networking?" Networking is the practice of making contacts and exchanging information with other people, groups or institutions. Usually, networking occurs with other people who have interests in similar areas. The goal of the networking relationship may be to further your personal employment opportunities or to cultivate new clients or the expansion of business relationships.

Obviously, Networking is always in conjunction with your career or business. Below are some of the benefits which we can obtain from it:-

1.Forging beneficial relationships: 

By doing this, you may pool and share your resources to a much greater extent for mutual benefits. Hence, it will enhance the relationships so as to build the trust amongst OURSELVES, SO TO SPEAK.

2. Developing and sharpening your knowledge & skills: 

Interacting with new people especially in your field may help you  see things in different perspective. Alternatively, you may also sharpen and polish your skills even better through interacting with each other within your network. You may learn both mistakes and successes from others.

3. Additional resources:

Networking contacts may also be from experienced professionals with wealth of knowledge that you may not have. They have, most probably different experience from you, and have different view points from you as well. In this sense, prosperity through diversity is applicable here.

By building a strong network, you automatically have people “on your side” that will help you spread good information about you and your business - Who doesn’t want this ?

4. Building and maintaining your personal brand: 

In addition, Networking also may help you to establish your personal brand both online and offline. Hence, people will get to know you and trust you much earlier and more willing to look for your guidance and advice.

5. Boosting your self-esteem: 

Your self-esteem will also be boosted through socialization and make you well-respected in your field. You tend to be much happier to have a network of individuals that can help you out and vice versa. Hence, make your business and brand grow further.

Trust you are able to see its benefits and work toward establishing your network. In this respect, you are always welcome to join my social network.


Please share your feedback here. We are glad to hear from you,

To your success in establishing your network,

James Oh

Skype me at james.oh18

HOW INVESTOR RELATIONS CAN ADD VALUE TO INVESTORS AND MANAGEMENT

HOW INVESTOR RELATIONS CAN ADD VALUE TO INVESTORS AND MANAGEMENT

With my preceding article on the importance of investor Relations (IR), I have touched on the IR roles, function and benefits. The nature of its work is more inclined to communicate with media as well as for financial analysis.

There are  many changes which, have taken place everywhere and the capital market is in no exception at all. This may be viewed as a great wonderful opportunity as it can add value to both management and investors.

Today, I am going to touch on some of the effective strategic initiatives which may be embarked by this unit, which I have laid down, in bullets point, for easy reference and understanding as appended below:-

a) Need to educate and inform investors regularly about the industry trends, material and significant things they should know and be aware of the business environment in which the company's operates. Understand how your industry is viewed. In this connection, you also need to select and analyse a peer group. 

b) Sets strategy to monitor what drives value in your stock and how your company fares on those matrix. 

c) Determines and assess how future initiatives affect long term shareholder value.

e) Targets investors effectively. In this sense, you need to know who is really going to influence the value of your company's stock as lead steers.

f) Monitors what drives value from the investors' perspective and constantly provide investors' insights and their decision making criteria to management and the board of Directors. In this context, you may gather insights from a representative samples of investors, gathering information among a few of the loudest and frequently heard investors that can caused the company to go down to the wrong path.

g) Needs to become part of the company's strategic planning team, which lead the future of your company. As such, you need to sit at the table with the key management teams to discuss and draw out the strategies of how you are going to communicate internally and externally. These alliances are crucial so as to ensure that everyone is speaking with one voice.

As such, trust you can see clearly how important that this unit  stay proactive and interactive with investment communities so as to give them a sense of comfort, besides arming with the necessary skills and knowledge  which may be market sensitive information. To build for the  long haul and in a transparent manner, all information released need to be consistent with its story line so as to earn a high integrity for the company. It is critically importance to earn the investors' confidence. Bear in mind, the company cannot avoid competing for investors both locally and internationally.

As the whole country, cannot avoid competing for international investors with other countries, so if you don't play this segment well, Malaysian companies will lose out.

That's all and seeing you again for another useful article on IR.

James Oh

Skype me at james.oh18

THE IMPORTANCE OF INVESTORS RELATIONS

THE IMPORTANCE OF INVESTORS RELATIONS AND ITS BENEFITS

Hi readers,

THE revised Malaysian Code on Corporate Governance which incorporated the fifth responsibility of a board - “developing and implementing an investor communications policy for the company” - should be viewed positively by all parties as a whole. This initiative has been taken by the authority to address this critical issue seriously.

With this in mind, I intend to emphasize the importance of Investors Relations,which more than often had been either overlooked or lightly taken as Corporate Public Relations, should be properly tackled by the Boards of Directors of the publicly listed companies, so as to raise the standard of Corporate Governance for which they are accountable for.

The Investors Relation's primary function is to ensure that the company's information is released in a fair and trustworthy manner. These recipients comprise of its shareholders and stakeholders such as its investors (retail and institutional, domestic and foreign), as well as the analysts and media who may analyze and comment its performance accordingly. These information also have strategic, financial and legal implications. Therefore, due care and diligence is required to handle such information.

The IR is to update its' current and prospective stakeholders about the company's long-range strategy; short and medium material events that may likely affect the company's performance. By doing so, it will only enable its shareholders to make informed decision based on their risk appetites and objectives.

Thus, it establishes a communication platform so as to regularly update and interact with its stakeholders; more than just issue occasional press release when a new product is launched, or a dividend is declared, or a senior executive moves. Hence, it serves as an additional avenue apart from relying on the normal means of communication such as AGM, the annual report and quarterly results. 

An effective Investor relations need to function strategically on a proactive basis so as to give comfort to shareholders to buy and hold its shares and not only purely rely on their individual risk appetites and time horizons.

Role of the board of directors

To ensure the IR achieves its end, its board of directors need to constantly review and approve its IR strategy in line with its values and cultures. Efforts of monitoring its progress on a regular basis need to be taken seriously. As usual, the boards not only need to share the significant and material information on trends that likely to affect the company, its peers and the industry as a whole, but also need to provide regular inputs and feedback regularly so as to improve its IR programme.

Role of the audience

On the other hand, the company’s audience may provide feedback on these given strategic, financial and legal information or use this information to profile the company either positively or negatively especially the media. In return, they may then use their independent analysis to recommend to the investing community – both retail and institutional.

IR function

The IR function must act as a two-way communication channel because it has two roles. On the one hand it must analyse the ownership structure of the company to identify the characteristics of various target audiences and how they perceive the company and its actions, making sure that the information regarding strategy, finances and any legal issues are disseminated appropriately so that the target audiences can make informed decisions on material matters. On the other hand it must analyze audience feedback and update the board on how the market sees the company both in absolute and relative terms – absolute as far as decisions taken or announced are concerned; relative as far as comparing the company with its peers as a desirable investment.

IR Benefits

A successful IR programme always serve as an effective communication channel between the company, the financial community and other stakeholders resulting in fair market valuation of its' company's shares. Consequently, it enables the company to access to its required funds with a much cheaper rate from both its lenders and investors due to the lower risk premium that are demanded. 

Moreover, a strong and long term relationship with its loyal retail and institutional shareholders can be easily achieved so as to ensure the stability of the company's share price especially in bad/uncertain investment's climate.

Thanks and seeing you again.

James Oh

Skype me at james.oh18