On the completion on calculating my financial ratios for BOOM Logistics, I found it was a simpler task
than restating the financial statements. I compared my work to that of other students and used their
helpful comments and tips and tricks to complete this. I also relied a lot on the Ryman examples to
find how things should be set out.
PROFITABILITY RATIOS
Net Profit Margin
NET PROFIT MARGIN = NET PROFIT AFTER TAX / SALES
2013
0.7% =(2,476) / $338,387
2012
5.6% = $19,705 / $352,141
2011
-11.2% = (37,748) / $338,332
2010
2.1% = 6,541 / 308, 591
The Net Profit Margin was nice and simple to calculate and easy to find in BOOM’s financial
statements. Through comparing other students work and using examples found on the internet, it
determined what this really means. In the case of BOOM Logistics in 2013, 0.7% of this total is profit.
Return on Assets
RETURN ON ASSETS = NET PROFIT AFTER TAX / TOTAL ASSETS
2013
-0.5% = ($2,476) / $489,025
2012
3.84% = $19,705 / $513,031
2011
-7.86% = ($37,748) / $480,250
2010
1.18% = $6,541 / $551,836
The second ratio is to determine the Return on Assets. This is the relationship between a company’s
profitability and its total assets or how effective the company uses its assets to generate income or
profit. When researching this, it showed that a higher Return, the better the company is at earning
profit. This can assist Managers to review and assess their resources, spending etc and ensure that
they are receiving the highest return possible.
EFFICIENCY RATIOS
Total Asset Turnover Ratio
TOTAL ASSET TURNOVER = SALES / TOTAL ASSETS
2013
0.69 = $338,387 / 489,025
2012
0.68 = 352,141 / $513,031
2011
0.70 = $338,332 / 480,250
2010
0.55 = $308,591 / $551,836
Total Asset Turnover is more so focusing on the company’ assets and how well they are being used
to generate revenue as opposed to ROA which is looking at a company’s profit and their assets
together. On researching this ratio, it was found that the higher the percentage is, the better the
company is doing. These percentages can seem low but it demonstrates how is has gradually grown
over the last four years, which is a positive as it shows that more sales are being generated based on
BOOM Logistics total assets.
.
LIQUIDITY RATIOS
Current Ratio
CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES
2013
1.85 = $77,711 / $41,867
2012
1.34 = $96,526 / $71,774
2011
0.55 = $85,473 / 153,698
2010
0.95 = $94,361 / $98,380
This ratio was quite simple to calculate. Upon researching this ratio, it explains that it is a measure of
BOOM Logistics ability to reduce its debts from its short term assets and mostly the current ones. It
also explains that a company with Current ratio of less than 1 wouldn’t be likely to pay back any short
term obligations that it has. A common accepted ratio is around the 2 mark. Based on the numbers
calculated, BOOM Logistics was struggling in 2010 and 2011 but has made a significant comeback in
2012 and 2013.
FINANCIAL STRUCTURE RATIOS
Debt to Equity Ratio
DEBT TO EQUITY = DEBT (TOTAL LIABILITIES) / EQUITY
2013
0.56 = $175,711 / $313,314
2012
0.62 = $197,292 / $315,739
2011
0.61 = $182,819 / $297,431
2010
0.64 = $217,335 / $334,896
Upon researching this ratio and looking at other students explanations, it is understood that this is one
of the most important ratios when developing an understanding of a firm’s financial position. It also
indicates that, depending on the type of industry of the company, a ratio can be above 2 and as low
as .5 for less capital intensive industries. This ratio was easy and simple to calculate. All information
was taken from BOOM Logistics most recent financial statements.
Equity Ratio
EQUITY = EQUITY / TOTAL ASSETS
2013
6.4% = $313,314 / 489,025
2012
6.1% = $315,739 / $513,031
2011
6.1% = $297,431 / $480,250
2010
6.0% = $334,896 / 551,836
This ratio explores the relationship between shareholders equity and the amount used to finance a
company’s assets. Upon researching this ratio, it was discovered that it is a reliable way to determine
the long term financial strength of a company. All information was found from BOOM Logistics most
recent financial statements.
MARKET RATIOS
Earnings per Share (EPS)
EPS = Net Profit after tax / Number of Issued Ordinary Shares
EPS = NET PROFIT AFTER TAX / NUMBER OF ISSUED ORDINARY SHARES
2013
-2.85 = 2,476 / $86, 831
2012
22.69 = 19, 705 / $86, 831
2011
-43.47 = -37, 748 / $86, 831
2010
7.53 = $6,541 / $86, 831
This was quite confusing as I didn’t have any Number of Issued Ordinary Shares for three of my
financial statements so I was unsure how to calculate it. I am still unsure if it is correct but spent a lot
of time researching and trying to see if other students had the same issue. My understanding is that
this ratio works to measure the profit that a company makes to every share that is issued. For BOOM
Logistics calculations, every issued share is worth different amount of cents each year of the
company’s profit.
Dividends per Share (DPS)
DPS = DIVIDENDS / NUMBER OF ISSUED ORDINARY SHARES
2013
0.0042% = 3.61 / $86, 831
2012
0.0042% = 3.61 / $86, 831
2011
0.0039% = 3.43 / $86, 831
2010
0.0049% = 3.86 / $86,831
This was also a confusing ratio to calculate as it had a lot of conflicting information. Upon researching
(For what seemed like hours), it is understood that DPS is calculating the dollar amount that
shareholders will receive for each single share that they own.
Price Earnings Ratio
PRICE EARNINGS = MARKET PRICE PER SHARE / EARNINGS PER SHARE
2013
0.18% = -0.5 / -271
2012
-3.28% = 4.2 / -128
2011
-2.80% = -8.2 / 293
2010
6.00% = 2.1 / 35
After researching this ratio and comparing other students’ views on this, it is understood that it is not
to be relied upon as a standalone figure. It explained that the Price Earnings ratio is only as clear as
the numbers calculated in the Earnings per Share ratio. Other research explains that Investors could
see a Price Earnings amount of 20 which is benchmarked as an average market Price Earnings. This
took a bit of time to understand and calculated based upon this information. There may be errors in
this formula as I was not 100% certain.
RATIOS BASED ON REFORMULATED FINANCIAL STATEMENTS
Return on Equity
ROE = COMPREHENSIVE INCOME (CI) / (AVERAGE) SHAREHOLDER’S EQUITY
2013
-0.48% = $-2154 / $447,158
2012
4.12% = $18, 436 / $447, 158
2011
-8.44% = -37,758 / $447,158
2010
1.4% = $6,551 / $447, 158
After reading fellow student’s blogs and looking online, it is understood that ROE (Return on Equity) is
a profitability ratio that shows how much of the company’s profit or income it can create with the
invested equity it receives from its shareholders.
Return on Net Operating Assets (RNOA)
RNOA = OPERATING INCOME AFTERTAX (OI) / (AVERAGE) NET OPERATING ASSETS (NOA)
2013
-0.79% = -$2,476 / $313,314
2012
6.24% = $19, 705 / $315,739
2011
-12.69% = -37,748 / $297,431
2010
1.95% = $6, 541 / $334,896
Whilst I am still learning the millions of acronym’s (NOA, NFO, NBC, ATO etc) RNOA (Return of Net
Operating Assets) is one that sticks in my mind. It is understood to be one of the biggest drivers of a
company’s economic performance in an organisation and involves measuring the company’s earnings
against what is has invested in the firm.
Net Borrowing Cost (NBC)
NBC = NET FINANCIAL EXPENSES AFTER TAX / NET FINANCIAL OBLIGATIONS
2013
-1.94% = -$10,557 / $313,314
2012
-2.06% = -$11,171 / $315,739
2011
-3.67% = -$15,557 / $297,431
2010
-3.15% = -$18,158 / $334,896
This is my first subject of Accounting and it was only until now that I have heard of the NBC (Net
Borrowing Cost). After doing some researching, a lot of students had the same questions – ‘What is
it? Is it important?’ I’m sure on some level, that it would have some importance. The definition that I
found involved measuring the amount of costs that a business incurs as a result of funding operations
through borrowings
Profit Margin
PM = OPERATING INCOME AFTER TAX (OI) / SALES
2013
-0.73% = -$2,476 / $338,387
2012
5.60% = $19,705 / $352,141
2011
-11.16% = -$37,748 / $338,332
2010
2.12% = $6,541 / $308, 591
From what I gathered from research, Profit Margin is slightly different to the Net Profit Margin. Both
sound the same but different? Confusing. It is understood that it is the major profitability ratio in
assessing the organisations ability to add value to shareholders.
Asset Turnover (ATO)
ATO = SALES / (AVERAGE) NET OPERATING ASSETS (NOA)
2013
1.08 = $338,387 / $313, 314
2012
1.12 = $352,141 / $315,739
2011
1.14 = $338,332 / $297,431
2010
0.92 = $308,591 / $334,896
Asset Turnover is considered the ‘Part 2’ of RNOA. This efficiency ratio is measuring how efficient the
company and more importantly management, are at generating sales from the assets that are
invested into the business. This was a bit difficult to work out but after research and searching deeper
into how other students completed this, I felt more confident.
Economic Profit
ECONOMIC PROFIT = (RNOA – COST OF CAPITAL) x NET OPERATING ASSETS (NOA)
2013
-$3,133,140 = (-0.79% - 10) x $313,314
2012
-$3,157,390 = (6.24% - 10) x $315,739
2011
-$2, 974,310 = (-12.69% - 10) x $297,431
2010
-$3,348,960 = (1.95% - 10) x $334,896
I was a bit confused and shocked when my calculations brought up quite a large negative numbers –
in the millions! I checked over and over and over again as I wasn’t sure if I had calculated correctly,
but then I remembered that my firm, BOOM Logistics, was a large mining company who would
experience and suffer from the mining down turns, the low desire for machinery/crane hire and the
loss of contracts. I read other comments by students who had ‘shocking’ calculations when
completing this question and when I read on, they had examined their profit margin and found they
weren’t doing so bad after all.
The ‘insights’ I have gained through dissecting the financial statements of BOOM Logistics has been
incredible. Really, my prior knowledge was only scraping the surface of it all and now learnt that
firms are a lot more technical and involve a lot more work. It shows the losses, the profits and where
the companies have struggled and is quite interesting once you go through each part. As I am still
not an Accounting guru, it is still taking me a bit to take on all this information. But hopefully, I’ll
have the grasp on it soon enough.
Step 2 – Capital Budgeting
This was a very difficult step as I was unsure how to work out certain steps in the process. I still don’t
believe it is done correctly but hopefully I have correctly completed a few aspects. Option 2, to build
a new BOOM Logistics depot in Bowen would be the best investment as it has a higher NPV (Net
Present Value) and a higher return of 33% (IRR – Internal Rate of Return). As Moranbah currently has
a depot already, it would be a more reasonable decision to invest capital in a near area. The
Payback Period was quite confusing to work out as I wasn’t sure how it was completed.