7 FINANCIAL ANALYSIS AND INTERPRETATION

-.,7 FINANCIAL ANALYSIS ANDINTERPRETATIONI ntroductionSome ProblemsHow to ProceedFinancial Ratios-Sales-Profitability- asset Management- FINANCIAL Structure-Liquidity Management-Expense AnalysisDuPont s Profitability ModelSources and Uses of FundsPercentage and Trend AnalysisComparative AnalysisFundamental AnalysisSummaryIntroductionFinancial ANALYSIS is the process of taking accounting and other FINANCIAL data andorganising them into a form which reveals a firm s strengths and weaknesses. Byhighlighting these areas, the users of FINANCIAL information can then make moreinformed decisions about the ANALYSIS undertaken will depend upon the needs of the user. If a supplier wantsto know if their bills will be paid, emphasis will be placed on the liquidity part ofthe ANALYSIS . If a banker is being asked for a loan, liquidity and level of debt will beexamined.

112 Financial Management and Decision Making Return on assets (ROA) Return on equity (ROE) Gross profit margin (GPM) Net profit margin (NPM) Operating return on total assets (ORTA) Return on assets (ROA) is the most commonly used measure of the performance of a firm.

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