Ratios, financial example

The economic viability of this process, however, will depend on the attainable polymer /solvent ratio. For example, it has been found that under experimental conditions lOOg of high density polyethylene (HOPE) may be dissolved in one litre of toluene before the solution becomes too viscous to process [12]. Wietek claims that energy costs for a pilot plant are similar to those of mechanical recycling when running with high polymer/solvent ratios. The financial breakeven point for a commercial plant of this type is calculated to be roughly 3,000 tonnes per year [13]. 

Activity ratios are measures of how effectively a company manages its assets. They are based on the assumption that there are proper relationships between a company s assets and the sales and income that the assets generate. Different methods are used to generate these ratios, and they depend on how a person wants to use the ratios. Most analysts compile average ratios from balance sheet data, which are end-of-year data. In this section and in the financial ratio example that follows, this method is used. 

Chapter 3 was completely revised to reflect current practice with respect to accounting and financial reporting. The accounting example for Delchem Corporation was shortened, and financial reporting and financial analysis were augmented and updated. Financial ratios were presented and applied to Archem operations. Finally, a Z-score indicator that determines the potential for bankruptcy was introduced and also applied to Archem. Excerpts from Monsanto s 1994 annual report were included to illustrate a real-world annual report. 

The annual financial reports of public companies contain estimates of total firm profit rates based on accounting records. For example, the net income as a percent of the total book value of assets27 is a commonly used benchmark of firm profitability (301). Companies themselves report this ratio in their annual financial statements and compare their performance in specific years with that in previous years. Other commonly used profit ratios, such as net income as a percent of sales, are also easily computed from company financial statements. 

This analysis is targeted at separating corporations of good and poor credit quality on the basis of a set of data (e.g. financial ratios). A discriminant function can, for example, be formulated as follows ... 

Isotope ratio measurements are not only the foundation of new discoveries and models, but also form a basis for decisions in, for example, global trading, environmental monitoring, and food safety issues. In many cases, decisions have financial consequences and therefore need to be based on firm measurement... 

With financial management we introduce key concepts and ratios. Unless the factory manager understands these ratios he or she will always be at the mercy of the accountants. The ratios are explained simply, and illustrated with easily understood examples. If you have some accounting knowledge, do not skip this section, take 5 minutes to woik through the examples and consider how they apply to your organization. 

The agencies make available data that may be consulted by the public for example, Standard Poors has a facility known as CreditStats, which was introduced in 1989. It contains the main financial ratios for a large number of companies, organized by their industry sectors. 

Any tactical decision in the supply chain (five are shown) influences these ratios either positively or negatively. As a result, we can predict the impact of tactical supply chain decisions on financial performance. Equally, we can use the model to predict the impact of top down decisions (for example cut working capital, or increase sales through promotions ) on supply chain positives and negatives. 

Further, it is imperative to understand that accountants have a significant level of discretion and make assumptions as they produce financial statements. Thus, making direct comparisons between similar companies from the same industry are difficult. Even knowing about the assumptions, comparing conglomerates is not easy. Two examples of how accounting latitude influences ratio comparison are as follows ... 

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