I begin to wonder the learnings this week if it is making any positive impact during these past two months of my MBA programme.
How can I really assess myself if what I have learnt has made a positive impact in my life.
I will agree that it has created a positive impact in me and as well expanding my thinking level.
We went through the interpretation of the financial statement in analysing of the account of a company.
This was a complex analysis and very unfamiliar to so many accountants in the class. But we had to go through a group exercise.
Some of the ratios carried out are as follows:
- RNOA: return on net operating assets- is driver of ROE (return of equity). The formular is RNOA _ NOPAT/Average NOA. Where- NOPAT is net operating profit after tax and NOA is net operating assets.
To appreciate the importance of RNOA, we must first
understand the difference between the operating and nonoperating assets and liabilities (equity is always
nonoperating).
- Net operating working capital (NOWC) equals operating current assets less operating current liabilities.
The current nonoperating assets include short-term investments in marketable securities.
The current nonoperating liabilities include short-term interest-bearing notes payable, interest payable, and current maturities of long-term interest-bearing liabilities (and capitalized lease obligations). Long-term operating assets include property, plant, and equipment (PPE), long-term investments related
to strategic acquisitions (equity method investments, goodwill, and acquired intangible assets), deferred
tax assets, and capitalized lease assets. Long-term operating liabilities include pensions and other
postretirement liabilities and deferred income tax liabilities.
- Net operating assets (NOA) of the company consist of current and long-term operating assets less current and long-term operating liabilities. Stated differently, net operating assets consist of net operating working
capital plus long-term net operating assets.
- Net financial obligations (NFO) are the net of financial (nonoperating) obligations less financial (nonoperating) assets.Net financial obligations are positive if net financial obligations exceed net financial assets and negative otherwise.
The formular is stated – Net Operating Assets (NOA) _ Net Financial Obligations (NFO) _ Stockholders’ Equity.
Management strives to increase ROE, and both RNOA and financial leverage (FLEV) are the drivers of ROE. Thus, one way to increase ROE is to increase RNOA through improved operating performance. The other way to increase ROE is with the successful use of financial leverage.
- Net Operating Profit Margin (NOPM)- The analysis of profit margin relates to the income statement. Profit margin can be used to compare one income statement number with another, where sales is the usual denominator. It is commonly used to compare the performance of one company over time and/or its performance vis-à-vis its competitors. The formular is Net Operating Profit Margin (NOPM) _ NOPAT/Sales
- Net Operating Asset Turnover (NOAT)- Asset turnover reflects the productivity of company assets. That is, it reflects the amount of capital required to generate a dollar of sales volume. The general form of an asset turnover ratio is: The formular is – Asset Turnover _ Sales/Average Assets.
Having to learn this complex ratio was really challenging but it shows my determination to belonging a financial analyst by the end of the programme.
#MMBA-4
