Financial Reporting and Ethics - The Institute of Chartered ...

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FINANCIAL REPORTING AND ETHICS(a)Return on Capital Employed (ROCE): This is the ratio of netprofit to capital employed. It is also known as the return oninvestment (ROI) ratio or the primary ratio, as it is the measureof the primary aim of the business, that is, return on the fundsinvested in the business. If the return is low, the firm must seekways of improving upon its profit level or seek alternative use ofits funds. Furthermore, its decrease from one year to the other isa sign of unfavorable result to the business and, so, managementmust adopt appropriate strategies to improve on the ratio byminimizing costs/expenses, maximizing sales/turnover andreducing outright acquisition of too many fixed assets. Thegeneral form of this ratio is given by:ORNet Profit after TaxNet Assetsx 100%Net Profit after Tax x 100%Capital EmployedROCE can also be referred to as return on average net assets(ROANA)/ROA, return on total assets (ROTA), and return on equity(ROE).These are calculated as follows:(i)ROA/ROANA = Net profit after taxAverage Net Assetsx 100%(ii) ROTA = Net profit after tax x 100%Total Assets(iii)ROE = Profit after interest and preference dividendsOrdinary Share Capital + Reservesx 1OO%This ratio (ROCE) can be calculated in several ways, dependingupon the interpretation given to the denominator, that is, capitalemployed. It could be total capital or the equity shareholders’capital. Some of its variants are:(i) Net profit before loan interest and taxation x 100%Shareholders’ fund + Loan Capital(ii) Net profit after tax x 100%Shareholders’ fund(iii) Net profit before tax x 100%Shareholders’ fund74
ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS(iv) Net Profit after tax and Preference Dividends x 100%Shareholders fundThe first variant attempts to measure the return on capitalemployed while the second variant is a measurement of the returnon only the funds belonging to the shareholders, that is, asituation where only ordinary shareholders exist. However, incases where there are ordinary and preference shareholders, thethird variant will be used. The fourth variant is measuring thereturn after tax on the funds belonging to the shareholders in asituation where there are only ordinary shareholders.(b)Return on Sales (ROS): This ratio serves as a measure of theprofitability of sales. It is either the gross profit percentage ornet profit percentage depending upon the need of the analyst.The gross profit percentage could be used in order to detect errorsor frauds affecting items in the trading account or to detect anydeviation from a fixed gross profit margin. The net profitpercentage is a good measure of a company’s net profit/loss resultin relation to various periods or even in relation to other firms inthe same industry. These ratios include:Gross profit x 100%SalesNet profitx 100%SalesThe return on sales ratio, especially the net profit margin is one of thetwo ratios jointly referred to as ‘the secondary ratios.’ The other one isthe ratio of sales to capital employed, that is, the capital turnover ratio.The two ratios form the components of the primary ratio sincetheir products will result in the primary ratios shown below:Net profitxSalesNet profit=Sales Capital Employed Capital EmployedAny dissatisfaction with the primary ratio can be analysed by lookingat the secondary ratios more clearly.4.7.2 Liquidity and Efficiency RatiosLiquidity refers to the ability of a firm to meet its current obligationswhen they fall due. Hence, liquidity ratios have a lot to do with the sizeand relationship of current assets to current liabilities. The standardmeasures of liquidity are obtained from the current ratio and the liquidratio. These ratios are shown below:75
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FINANCIAL REPORTING AND ETHICS1.3.3
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ACCOUNTING AND REPORTING POLICIESsu
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ACCOUNTING AND REPORTING POLICIES(j
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ACCOUNTING AND REPORTING POLICIES(i
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ACCOUNTING AND REPORTING POLICIES2.
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3AMALGAMATION, ABSORPTION ANDRECONS
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AMALGAMATION, ABSORPTION AND RECONS
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ETHICAL FRAMEWORK, CONCEPTS AND VAL
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7THE ENVIRONMENT: CORPORATE,PROFESS
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THE ENVIRONMENT: CORPORATE, PROFESS
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8PROFESSIONAL ETHICS8. 0 LEARNING O
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PROFESSIONAL ETHICSobjectivity are
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PROFESSIONAL ETHICS(c)(d)The type o
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PROFESSIONAL ETHICSabout conflicts
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PROFESSIONAL ETHICS(d)(e)Confidenti
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PROFESSIONAL ETHICSA. III onlyB. II
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9DECISION MAKING IN ETHICS9. 0 LEAR
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DECISION MAKING IN ETHICS9.2 A FRAM
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ETHICAL THREATS AND SAFEGUARDS(d)We
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DECISION MAKING IN ETHICS4. A perso
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10ETHICAL THREATS TS AND SAFEGUARDS
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ETHICAL THREATS AND SAFEGUARDS(iv)(
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ETHICAL THREATS AND SAFEGUARDSto th
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ETHICAL THREATS AND SAFEGUARDSpayab
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ETHICAL THREATS AND SAFEGUARDS(a)Fi
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ETHICAL THREATS AND SAFEGUARDSimmin
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ETHICAL THREATS AND SAFEGUARDSHowev
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ETHICAL THREATS AND SAFEGUARDS(iii)
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11CORPORATE GOVERNANCE11.0 LEARNING
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CORPORATE GOVERNANCE11.3.1 Nature(a
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CORPORATE GOVERNANCEThe company sho
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CORPORATE GOVERNANCEtrust, possible
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CORPORATE GOVERNANCEAn agent has im
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CORPORATE GOVERNANCE(a)(b)(c)(d)(e)
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CORPORATE GOVERNANCE11.6.1 The law
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CORPORATE GOVERNANCEILLUSTRAUSTRATI
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CORPORATE GOVERNANCEimitated. They
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CORPORATE GOVERNANCE(a)(b)Greenbury
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CORPORATE GOVERNANCE11.9.2 Boards d
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CORPORATE GOVERNANCErelationship wi
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CORPORATE GOVERNANCE(e)(f)(g)(h)(i)
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CORPORATE GOVERNANCE(vi)Inquisitive
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CORPORATE GOVERNANCE(e)ConsultancyA
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CORPORATE GOVERNANCEThe incoming au
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CORPORATE GOVERNANCEIn summary, acc
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CORPORATE GOVERNANCEAccording to Th
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CORPORATE GOVERNANCE3. A body corpo
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12SOCIAL AND ENVIRONMENTALISSUES IN
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SOCIAL AND ENVIRONMENTAL ISSUES IN
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APPENDIX ISUGGESTED SOLUTIONS TO RE
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SUGGESTED SOLUTIONS TO REVISION QUE
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SUGGESTED SOLUTIONS TO REVISION QUE
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APPENDIX IICOMPREHENSIVE QUESTIONS
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COMPREHENSIVE QUESTIONS AND SUGGEST
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APPENDIX IIICASE STUDY 1Karsashi, a
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CASE STUDIES(iii)(iv)The floor sale
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CASE STUDIESShare price and dividen
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CASE STUDIESSUGGESTED SOLUTION(A) A
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CASE STUDY 3The following informati
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CASE STUDIESCASE STUDY 4Ologobojo i
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APPENDIX IVTable 1:SUMMARY OF INTER
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SUMMARY OF INTERNATIONAL ACCOUNTING
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APPENDIX VGLOSSARY OF TERMSAbsorpti
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GLOSSARY OF TERMSEthical Objectivis
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APPENDIX VIBIBLIOGRAPHYChambers Ham
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APPENDIX VIISTUDY AND EXAMINATION T
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STUDY AND EXAMINATION TECHNIQUES7.3
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INDEXAAbsorption, 17, 19, 39, 40, 4
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INDEXProfessional Behaviour, 136, 1
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