Financial Indicators

NotAGolf

NotAGolf

NotAGolf

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What would you say are the 5 most important financial key indicators? I've come up with:

- Net Sales
- Net Profit
- Profit/Loss Before Taxes
- Operating Profit/Loss
- Total Assets

Is this about right?
As you can tell I know nothing about financial do da's so any advice would be gratefully receieved!
 
What about forecasted sales and profits?
GDP growth, inflation etc.

Depends what angle you are coming at it from I suppose. If looking at a company I'd be examining sales growth, and forecast, profit growth and forecast etc. If looking for investment, then economy-wide analysis is more important.

Si
 
Depends on the size of the company a bit and also who's using the information. Investors in a large company would also be interested in EPS (earnings per share) and ROCE (return on capital employed) etc.
Different users want different information.

For a small company you could be right.

It depends what you're comparing them against as well.

There are many different financial ratios though, why do you want to know the 'top 5'?
 
In what regard - just to see if the business is a going concern or to invest in longer term? Depending on what I was doing and what area the business was in then I'd possibly also be looking at cash reserves (could come under total assets I suppose), amount of bad debts and average for that sector. I'd also be looking to see how the business has grown historically - in some cases growing too fast can be as bad as not growing at all if the present growth has led to over-extension of resources. Market share would also be important if I was considering investing.

All the above comes with the obvious caveat that I'm not a market analyst so I'm just telling you a few things I'd personally be looking for.
 
weringo said:
The two most important are probably your balance sheet and your profit/loss account.
Click to expand...

Cash flow could be a lot more important than P&L especially for smaller companies

To know how well a company is performing though you really need to breakdown the financial statements to analyse them
 
Gearing should be in there. Without knowing how highlh geared a company is, a set of figures can look good on the surface and be a frightening mess underneath, ready to cllapse at any time.

Also, if the company is asset-rich, depreciation needs to be there and I have seen it omitted to improve ailing figures.

Finally, liquidity. It's no good turning a grteat profit if all of your money is perminantly tied up and you cannot use it. I have seen several companies go under simply because they could not recycle the cash. No debts left after wind-up and in one case a nice big lumper for the directors but the simple fact is that you can't spend moeny if you ain't getting it back in.
 
Can you post the size of the company and the stakeholders who are using it?

It's pretty long list otherwise :P
 
Well I'm ashamed to say its for an assignment. I don't want you to do it for me, I was just looking for a bit of general advice.

We simply had to choose a PLC company (I chose Ted Baker, no reason really) and list the 5 (minimum) financial key indicators and briefly explain the significance of them. I've been looking at their annual report (here)and just trying to work out which are the most important factors.
 
Free cash flow = operating cash flow – (capex spending and taxation)

A very good indicator of how "good" a company really is at generating money.

Rgds

Radderfire
 
mpledge52 said:
Well I'm ashamed to say its for an assignment. I don't want you to do it for me, I was just looking for a bit of general advice.

We simply had to choose a PLC company (I chose Ted Baker, no reason really) and list the 5 (minimum) financial key indicators and briefly explain the significance of them. I've been looking at their annual report (here)and just trying to work out which are the most important factors.
Click to expand...

I had a similar assignment although seemingly in much more detail the other year. As a rough guide 5 indicators an investor may want to look at before investing into a company like Ted Baker would be:

1. Earnings per share - needed before you can do number 2
2. P/E ratio - looks at the profitability
3. ROCE - looks at efficiency
4. Acid Test - looks at liquidity
5. Debt/Equity ratio - looks at risk

Those 5 would give you a rough guide of the entire company from an investors point of view.

Edit: may want to look at the stock holding period too considering the nature of the company.
 
BaZ87 said:
I had a similar assignment although seemingly in much more detail the other year. As a rough guide 5 indicators an investor may want to look at before investing into a company like Ted Baker would be:

1. Earnings per share - needed before you can do number 2
2. P/E ratio - looks at the profitability
3. ROCE - looks at efficiency
4. Acid Test - looks at liquidity
5. Debt/Equity ratio - looks at risk

Those 5 would give you a rough guide of the entire company from an investors point of view.

Edit: may want to look at the stock holding period too considering the nature of the company.
Click to expand...

That is almost exactly what I was going to say... you want to be measuring the following:

- Profitability
- Activity/Performance
- Liquidity

Funnily enough, I handed an assignment for my Masters course on Tuesday and did a very similar thing. Take a look at these notes from my course (Warwick), because they helped me a lot:
http://www.sendspace.com/file/fwgk5h

Basically, put all the figures from the accounts (at least the last 3 years) in Excel and use the formulas to do the calculations. Draw graphs to clearly show trends etc :)
 
Thanks very much for the help everyone. I will have a look into what all these weird and wonderful words and abbreviations actually mean!

But yes it's not going into much detail at all we have to summarise who the company are, what they do and what their financial status is in 500 words, so it's really not very detailed. It's a small question which is part of a much larger assisgnment, which actually seems completely un-related:confused:

But thanks again!
 
Sorry for the revival of a completely dead thread, but I've still got no response from the lecturer so I'm just going ahead with it and choosing the 'best' overall indicators. So far I have calculated the following:

-EBITDA
-Net profit
-Net current assets (working capital)
-Total assets
-Earning per share
-Price to earnings (P/E) ratio
-ROCE
-Acid test
-Debt/Equiy ratio (Gearing/Leverage)

There is also cash flow which I'm not sure about, I've found out two entries in the report:
Cash and cash equivalents per cash flow statement: £13,513,000
Cash and cash equivalents at 27 Jan 07: £13,513,000
Is this simply known as cash flow? There is also free cash flow which I've calculated.


Out of the indicators above, which would you say are most important as an overall view of the company?

My pick would probably be the following, but I'm still not a pro!!
EBITDA
ROCE
Acid Test
Net current assets
P/E ratio
D/E ratio


Does this sound abut right or have I missed something.
Thanks again for any advice.
 
Danger Phoenix said:
Yep, you NEED gearing!
Click to expand...
Covered by the Debt / Equity ratio which is one of the gearing ratios.

mpledge52 said:
-Net current assets (working capital)

Does this sound abut right or have I missed something.
Thanks again for any advice.
Click to expand...
For a working captial ratio, I'd use stock-turnover as opposed to just looking at current assets held:

Cost of Sales / Inventory = Stock turnover.
 
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