Searching for Ratios using

FAME

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What are ratios

• Ratios allow you to assess, the

liquidity, solvency, efficiency and

profitability of a company

• Ratios allow you to gauge a company’s

performance over time or against the

performance of other companies

• The financial information on the Balance

Sheet allow ratios to be calculated

What do ratios tell you about a

company

• Ratios allow you to assess the:– Liquidity of a company or it’s ability to meet its

current financial obligations with cash and the current assets it has

– Solvency of a company or it’s ability to meet it’s long-term obligations

– Efficiency of a company or how effectively it is operating. Efficiency, therefore is a good measure of profitability

– Profitability of a company or a definitive evaluation of the overall effectiveness of management based on the returns generated on sales and investment

What are the main ratios?

• Liquidity Ratios:

• Current ratio – current assets divided by

current liabilities

• Quick or acid-test ratio – current assets minus

stock divided by current liabilities

• Defensive interval – your most liquid assets

divided by daily operating expenses

What are the main ratios?

• Solvency Ratios:

• Gearing - A general term that compares

some form of owner's equity (or capital) to

borrowed funds.

• Gearing is a the degree to which a firm's

activities are funded by owner's funds against

creditor's funds

What are the main ratios?

• Efficiency Ratios

• Debtors’ turnover – average credit sales divided by debtors over 365 days or how quickly you are collecting the debts that are due to you within a year

• Creditors’ turnovers – average purchases divided by average credit purchases or how long you take to pay suppliers for items bought on credit

• Stock turnover – average stock, i.e. opening stock + closing stock divided by 2 and then divided by cost of sales or how long you hold stock before selling

What are the main ratios?

• Profitability Ratios:

• Gross Profit Margin – gross profit as a

percentage of sales: this is a good figure with

which to compare with others in the same sector

• Net Profit Margin - net profit margin is the net

profit (i.e. profit less costs except interest and tax)

expressed as a percentage of sales

• Return on capital employed - The net profit

expressed as a percentage of capital employed

How do you search for ratios using

FAME

• FAME allows you to search on of 27 different ratios

• You can select companies within a given sector or peer group with which to compare

• You can select a company with which to compare over time

• You can create a research format, highlighting the ratios you require

• You can export your data into other software programs such as Excel in either a standard or graphic report

Open your browser and type in the

Learning Resources web address

into the location bar ……..

• www.lr.mdx.ac.uk

• Select Electronic Resources

Make sure that you have set your

institutional cookie

• Scroll down to the bottom of the Electronic

Resources page and click on to the link

• Once you’ve clicked on to the link, a pop-up

window will appear and then close

automatically – you only need to do this once

Log into Athens

• Athens is an authenticating system that

allows students to access Middlesex

University databases outside of the university

• Click on to the Athens link

• Log in using your IT user ID and your network

password and once you have accepted the

terms and conditions, you will be presented

with a list of databases

Searching FAME

• Scroll down and choose FAME from the

list of databases

About FAME• FAME is a database that contains information

about companies in the UK and Ireland

• They provide extensive support from their user

guide

Extracting ratios from FAME• Imagine that you are interested in comparing the

ratios of companies in the clothing industry in

London

• Making sure that you are in Expert Search, click

on Activity/Industry

• Select Major Sectors and then Textiles…..

Comparing ratios across companies• Refine your results by geography

• Click on Geographical Location, County and then choose London

Reducing your results for analysis

• Reduce your results in order to perform a ratio analysis – FAME will, however, pick out 10 standard companies from your search results

• Choose companies with total assets of between 100 and 500 thousand

• Select Financials – key financial – total assets from the left hand panel

• The default is thousands of pounds – put in a minimum of 100 and a maximum of 500

Reduce the selected companies

by their total assets

Look at the summary of your

search choices

Comparing ratios across

companies

• Imagine that you want to perform a current

ratio analysis of a selection of companies for

the last available year

• Click on List from the left hand selection of

tabs

• Ignore the preset list of formats and select

new

• Choose ratios from the Sections pull down list

Creating a report format

• Don’t forget to save your format with a memorable name

Saving your results

• Once you have a list of companies

together with their current ratio, export

them into Excel from which you can create

a variety of charts

Exporting your Report into Excel

• Select Export

• Choose a file name and then export

Exporting…..

• A pop-up window will appear

Opening the report

• Double click on the link to open the report

in Excel

A graphic representation of ratios

• Within Excel, there are options to

represent your ratio information graphically

• Select Insert

• Highlight the rows and columns that you

want to include and choose a chart

The End

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