Lesson 8

    Cards (54)

    • What should you be able to explain after completing the topic on Performance Appraisal: Operating Profitability?
      How revenue should be analysed.
    • What does the gross margin ratio compare?
      A company's gross profit to its revenue.
    • What is the cost-income ratio?
      The percentage of gross profits that go on running the business.
    • What is ROCE an abbreviation for?
      Return on capital employed.
    • Why is ROCE considered an important profitability measure?
      It indicates how effectively a firm generates revenue from its operating assets.
    • What is the tension between asset turnover and operating margin?
      Higher asset turnover may lead to lower operating margins and vice versa.
    • What does the term 'working capital' refer to?
      A firm's trading assets and liabilities.
    • What is the significance of headline figures in revenue analysis?
      They provide an overview but require deeper analysis for understanding underlying factors.
    • How would you calculate the gross margin ratio?
      Gross Margin Ratio = Gross Profit / Revenue.
    • What can cause differences in operating margins among companies in the same industry?
      Differences in operating efficiency and economies of scale.
    • What is the formula for calculating operating margin?
      Operating Margin = Operating Profit / Revenue.
    • What does a higher cost-income ratio indicate?
      A larger percentage of gross profits is used for running the business.
    • If a company has a gross profit of £200,000 and revenue of £1,000,000, what is its gross margin?
      20%
    • How do economic conditions affect cost-income ratios?
      Economic conditions like inflation and exchange rates can impact cost-income ratios.
    • What are the key components of the Statement of Profit and Loss?
      • Revenue
      • Cost of Sales
      • Gross Profit
      • Operating Profit
      • Net Profit/Loss
    • What are the average gross margins for supermarkets and car industries?
      • Tesco: 6.6%
      • Sainsbury: 7.9%
      • Asda: 2.14%
      • Tesla: 22%
      • Ford: 17%
      • Ferrari: 50%
    • What calculations should be performed for Greggs in the classroom exercise?
      1. Calculate gross margins and percentage change.
      2. Calculate operating margin and explain changes.
      3. Calculate cost-income ratios and assess management of gross profits.
    • What are the intended learning outcomes for the topic on Performance Appraisal?
      • Explain revenue analysis.
      • Define and interpret ratios from financial statements.
      • Explain the importance of ROCE.
      • Discuss the tension between asset turnover and operating margin.
    • What are the challenges analysts face with revenue disclosures?
      • Lack of standardisation.
      • Variability in disclosures by product type, customer, location, and channel.
      • Difficulty in direct company comparisons.
    • What factors can influence a firm's cost-income ratio?
      • Business models (e.g., technology, automation).
      • Scale economies.
      • Economic conditions (e.g., inflation, exchange rates).
    • What was Tesla's gross profit margin in 2022?
      25.6%
    • What was Tesla's gross profit margin in 2023?
      18.2%
    • What does a decrease in Tesla's operating margin from 2022 to 2023 indicate?
      It indicates a decline in profitability.
    • What was the change in Tesla's operating margin from 2022 to 2023?
      • 28.9%
    • What is the cost-income ratio for Tesla in 2023?
      49.6%
    • What was the revenue for Greggs in 2022?
      £1,229.7 million
    • What was the revenue for Greggs in 2023?
      £1,512.8 million
    • What was the total cost of sales for Greggs in 2022?
      £1,030.3 million
    • What was the gross profit for Greggs in 2023?
      £225.1 million
    • How did Greggs' operating expenses change from 2022 to 2023?
      They increased from £61.2 million to £70.7 million.
    • What is the formula for calculating working capital?
      Working capital = current assets - current liabilities
    • What are considered current assets?
      Cash, trade receivables, inventory, and prepayments.
    • What does the term "operating assets" refer to?
      Assets used in core business operations to generate revenue.
    • How is asset turnover calculated?
      Asset turnover = Revenue / Operating Assets
    • What was the asset turnover for Greggs in 2022?
      1. 68
    • What was the asset turnover for Greggs in 2023?
      1. 94
    • What does a higher asset turnover indicate?
      It indicates better efficiency in generating revenue from assets.
    • What is the formula for Return on Capital Employed (ROCE)?
      ROCE = Operating Profit / Capital Employed
    • What was the ROCE for Greggs in 2022?
      19%
    • What was the ROCE for Greggs in 2023?
      20%
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