Accounting and Finance in AS Diena — страница 3

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interest payable. Key ratios Calculating the key ratios, average values were used because profit was made during the year. There is also an assumption that profit is the same each day during the year. All the ratios and necessary data are given in Table 1. ROA This ratio does not depend on the capital structure of the firm (The Profitability, Financing, and Growth of the Firm, p. 26). Profit before interest and taxation should be used in order to separate ROA from the company’s financial policy. The ratio is 28.83 per cent (Table 1) which is more than the same ratio for AS Preses Nams, thus telling about better business performance. ROE The difference from the previous ratio is that ROE shows the return from the owners’ point of view; however, here the minority interest is

also regarded as equity. Thus the profit after taxes (with minority interest added back) has to be applied. In AS Diena’s case ROE is 69.83 % (table 1). The reason why there is so large difference comparing to AS Preses Nams (17.91%) is explained under D / E ratio section. COD Average cost of debt in 1997 for AS Diena was 2.15 per cent and being 3 times less than for AS Preses Nams (Table 1) shows how debt structure affects COD. AS Diena has higher proportion of non-interest bearing debt, thus, its COD is lower. D / E D / E describes the financial policy of firm. It is 2.53 in AS Diena’s case (Table 1) which shows that concern finances its operations two and half times more using debt than its own equity. Here an important notice should be made: LVL 655.7 th (Annual Report,

1997, p. 23) are subscription fees for the next year which calculating D/E and COD are regarded as debt. The fact that for AS Preses Nams D / E = 0.52 explains why there is much sharper difference for ROE than ROA. Equity is less important source of financing for AS Diena, so the difference in ROE occurs. t It should be noted that effective tax rate can deviate from the statutory tax rate during years. (The Profitability, Financing, and Growth of the Firm, p. 60) This difference can be seen in AS Diena’s case. The denominator in the ratio is profit before tax. In 1997 t was 27.47 per cent. (Table 1) However applying the same formula in 1996 this ratio was 60.32 per cent. Current ratio; Quick ratio The quick ratio shows the liquidity in very short terms when it is impossible to

sell stock. Both ratios for AS Diena are similar and larger than 1 (Table 1). Thus, it should not be very hard for AS Diena to get over short-term problems. Little difference between these ratios indicates the low proportion of stock in current assets. In contrast, current ratio for AS Preses Nams is 2 times more than quick ratio because it has large amount of stock. Equity ratio Equity ratio for AS Diena is 33.15 %, and it is 2 times less than for AS Preses Nams. The reason for this difference is of similar nature as for D / E discussed above. Profit margin; Capital turnover ROA depends on two factors. The first one is profit margin, and it is 13.15 %. (Table 1) The second factor is capital turnover that can indicate the speed of operations. The decomposition of ROA shows that

the difference between AS Diena and AS Preses Nams in ROA is due to faster capital turnover in AS Diena’s case. E / E0 = ROE0 – Div / E0 + NI / E0 This formula decomposes equity changes. Because there was no new issue of shares in 1997, only profit and dividends affects equity for AS Diena. ROE = (1 – t)(ROCE + (ROCE – COD) * D / E) In this formula only interest-bearing debt should be taken into consideration. Thus COD was 7.99% (Table 1), and it is similar to COD for AS Preses Nams, because there COD does not depend on company’s debt structure. Conclusion It is fair enough to say that it takes more than just analysing the Annual Reports to draw serious conclusions about the accounting system and finance in the firm. However, some important findings can be listed to

summarise the investigation conducted in the report. First, there is no doubt that the computerised accounting system is the only one applicable for the company of the similar size because of the immense number of transactions and complicated structure of the business. Next, the analysis has revealed some features that characterise the publishing and printing business: operating activities are mainly financed by short-term liabilities, most of them being non interest -bearing debtors are the main component of the current assets of the company, due to the need in the high level of stock turnover To conclude, the AS Diena financial indices show an outstanding, if compared to competitors, business performance. Reference list Annual Report of AS Diena (1997). Johansson, S. (1998) The