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Analysis uncertainties. There are many ‘definitions’ for ratios Items shown in financial statements may be vague and full disclosure may not be available Financial standards hope to encourage useful disclosure Every analyst should decide for themselves how to define a ratio and what to include.
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Analysis uncertainties There are many ‘definitions’ for ratios Items shown in financial statements may be vague and full disclosure may not be available Financial standards hope to encourage useful disclosure Every analyst should decide for themselves how to define a ratio and what to include
Analysis uncertainties ROCE Return On Capital Employed which profit PROFIT CAPITAL which capital
Analysis uncertainties ROCE ‘standard’ definition PROFIT = PBIT CAPITAL = EQUITY + DEBT which debt?
Analysis uncertainties ROCE ‘standard’ definition PROFIT = PBIT CAPITAL = EQUITY + LIABILITIES which liabilities?
Analysis uncertainties ROCE ‘standard’ definition PROFIT = PBIT CAPITAL= EQUITY + NON-CURRENT LIABILITIES
Analysis uncertainties But should CURRENT LIABILITIES be included? PBIT equity + non-current + current liabilities liabilities
Analysis uncertainties ROCE Return On Capital Employed is also PROFIT on ASSETS employed PROFIT ASSETS (net) which assets?
Analysis uncertainties ROCE ‘standard’ definition PROFIT = PBIT ASSETS= non-current + current - current assets assets liabilities but what if the ‘current’ liabilities have the character of borrowings? should they be excluded?
Analysis uncertainties PROFIT = PBIT ASSETS= non-current + current - current assets assets liabilities which non-current assets? should be all TANGIBLE + INTANGIBLE is intangible asset disclosure adequate in the financial statements?