Question

Assume you are each of the following Stakeholders:

Shareholder

Manager

Supplier

Short term lender

Long term Lender

Employee

Customer

For each of the above, use two ratios to evaluate a company. List the two ratios you would pick and explain why you chose them. Post your answer to Blackboard (you can do this exercise in Word if you wish)

Answer 1

Stakeholder as a :
1…. Shareholder
Ratios to look for	Formula	Where available	Reason
P/E or Price to Earnings ratio	Market Price/share/Earnings per share	Prevailing Market price & after-tax net income from Income statement	Price that is to be paid for $ 1 of earnings
Dividend Yield	$ dividend/Market price	Dividend from Income staement & market price	For comparison with other companies & also to study the rate of return over the years for the same company
2...Manager
Accounts receivables turnover	Net credit sales/Av.a/cs receivable	Income statement& balance sheet	Reflects the efficiency manager in collection of receivables which increases the cash flow within the business
Accounts payables turnover	Net credit purchases/Av.a/cs payable	Income statement& balance sheet	Reflects the efficiency manager in taking advantage of the credit offered by the suppliers which also helps maintain cash flow within the business
3….Supplier
Current ratio	Current assets/Current liabilities	Balance sheet	Helps to know the ability of the company in paying its trade credits & the adequacy of liquid assets
Payable in days	365/A/cs payables turnover	Income statement& balance sheet	To know the no.of days once in which creditors are paid
4… Short term lender
Current ratio	Current assets/Current liabilities	Balance sheet	Helps to know the ability of the company in paying its short-term obligations(arising within a year) with the liquid assets
Quick ratio	(Current assets-inventory&prepaid assets)/Current liabilities	Balance sheet	Helps to know the ability of the company in paying its (within a yr.)short-term obligations with very liquid assets(except inventory,prepaid assets)
5...Long term Lender
Debt to Equity	Debt/Equity	Balance sheet	To know the level of debt-funding already prevalent in the company so as to assess it ability to repay
Interest coverage ratio	EBIT/Interestexpense	Income statement	To assess the no.of times interest expenses will be covered by the company's earnings
6...Employee
Gross profit margin	Gross profit/Net sales	Income statement	To assess the margin left over to meet operating expenses like his salary & the level of perquisites
Revenue per employee	Net revenue/No.of employees	Income statement& balance sheet	To know the efficiency of the company in utilising its human resource capital
7..Customer
Accounts receivables turnover	Net credit sales/Av.a/cs receivable	Income statement& balance sheet	To know the credit -days that may be available, when purchasing their products/services
Inventory turnover ratio	COGS/Av. Inventory	Income statement& balance sheet	To know about how quick the products of the company are moving(demanded) in the market