ACCA Financial Management

= Av. accounts receivable / Credit sales * 365

average acc. payable / credit purchases * 365

Average Inventory / Cost of Sales * 365

= Inventory holding Period + Receivables collection period - Payables payment period

Sales / Capital Employed

Sales / Working Capital

Non-current Liabilities / Equity + Reserves

>100% = highly geared

non-current liabilities / Capital employed

Capital employed = total capital -> >50% = highly geared

Fixed Operating Costs / Variable Operating Costs

Fixed Operating Costs / Total Costs

Contribution / Operating Profit

-> Contribution = Revenue - VK

• In cases where a business has high fixed costs as a proportion of its total costs, the business is deemed to have a high level of operational gearing.

  Potentially this could cause the business problems in as it relies on continuing demand to stay afloat.

• If there is a fall in demand, the proportion of fixed costs to revenue becomes even greater. It may turn profits into serious losses.

  Normally, businesses cannot themselves do a great deal about the operational gearing, as it may be typical and necessary in the industry, such as the airline business

Profit of the year attributable to ordinary shareholder / weighted average nr. of outstanding shares

= Net Profit - Pref. dividends (if not liabilities) / weighted average nr. of outstanding shares

• based on past data
• impacted by accounting policy choices
• liable to manipulation for bonuses

Net Profit (- pref div. ) + DPS adjustments / weighted average nr. of shares outstanding

potentially dilutive securities (PDSs). These are securities in issue that have an obligation to issue shares in the future (e.g. convertible debt or share options).

Ordinary share price (ex div) / EPS

• Driven by the market price of a share and the earning capacity of that share.
• If the EPS goes up or down, the share price is also expected to go up or down, so the new share price will be the new EPS multiplied by the constant P/E ratio.

Net Profit - pref div. / Ordinary Dividends

Ordinary dividend / Net profit - pref. dividends

Dividend per ordinary share / Ordinary Share price

EPS/Ordinary Shareprice

Share Price 1 - Share price 0 + Dividends for the year / Share price 0

0 = at start of year

1 = end of year

setting of economic objectives by the government (full employment, economic growth etc) and the use of control instruments to achieve those (fiscal/monetary policy)

actions taken by the government or central bank to achieve economic objectives with monetary instruments like:

• controlling the amount of money in circulation
• attemptin to reduce the amount of money through price (IR)

This can be directly (e.g. sale of government securities) or indirectly (through Interest rates) controlled

Government actions to achieve economic objectives through the fiscal instruments of taxation, public spending and budget deficit or surplus.

(keynesian approach)

Fiscal & Monetary policies are interdependent!

policies which focus on creating the right conditions in which private enterpise can grow and raise the capacity of the economy to provide the output demanded

Currency's value is allowed to move freely with supply & demand market forces

ER is kept fixed against that of another currency - no fluctuations

Fluctuation allowed within a certain range

Average change overt ime in the prices paid by consumers for a market basket of consumer goods/Services

Inflation arises due to demand>max output of the economy with full employment

Inflation rises due to increases in cost of raw materials & labour

selling new securities to raise new funds

trading existing securities

• Monetary market (ST finance (debt) for current-assets)
• Capital markets ( LT finance (debt, equity) for non-current assets but also current assets)

Investor believes that prices will rise

Investor believes that prices will fall

the market price of all securities traded reflects all the available information

responds immediately to the information made available to it