The retail price index (RPI) and the (CPI) are both in the UK. The UK government's stated policy is to use the consumer price index (CPI) for the indexation of benefits, tax credits and public service pensions, whereas it would use the retail price index (RPI) for the uprating of index-linked gilts and revalorisation of excise duties.
The retail price index, or the RPI, shows the changes in the cost of living. It reflects the movement of prices in a range of goods and services used regularly, such as food, heating, housing, household goods, bus fares and petrol. Items considered most important to us, such as housing and food, are given a higher weighting in the overall index, while items, such as tobacco, are given a lower weighting. The RPI is inclusive of VAT, and other taxes, and as such can change as a result of changes in taxation levels.
A is the average price of a security over a specified period of time. Analysts frequently use moving averages as an analytical tool to make it easier to follow market trends, as securities move up and down. A series of successive averages of a defined number of variables. As each new variable is included in calculating the average, the last variable of the series is deleted. With the moving average, an accountant employs the most recent observations to calculate an average, using the result as the forecast for the next period. Time series analysis is based on historical data. For Mr Jones business managers must identify whether the data shows a generally upward, downward or a constant trend. To help them to do these businesses will ‘smooth out’ the raw data by using moving averages. The moving average is usually either 3–period or 4-period, depending how often the average is taken.
An f comparison in which certain are divided by one another to reveal their logical . Some financial ratios (such as to worth ratio and to net sales ratio) are called because they indicate the fundamental causes underlying a company’s strengths. Others (such as to ratio, and ) are called because they depict the company's and as effects of the causes identified by the primary ratios.
There are many categories of ratios- all of which measure performance
- Liquidity- which measures cash flow and solvency
- Profitability and overheads ratios- which measure earnings compared with overheads
- Use of assets and capital- which measures how well they use the money they employ to generate income
- Efficiency ratios- how fast they can get the money from customers, how long they take to pay creditors and how fast they can sell their stock
- Gearing- which measure who really owns the business
Liquidity ratios are the ratios that measure the ability of a company to meet its short term debt obligations. These ratios measure the ability of a company to pay off its short-term liabilities when they fall due. The liquidity ratios are a result of dividing cash and other liquid assets by the short term borrowings and . They show the number of times the short term debt obligations are covered by the cash and liquid assets. If the value is greater than 1, it means the short term obligations are fully covered. Generally, the higher the liquidity ratios are, the higher the margin of safety that the company posses to meet its current liabilities. Liquidity ratios greater than 1 indicate that the company is in good financial health and it is less likely fall into financial difficulties.
Profitability ratios: There are many ways of measuring profitability using ratios:
- Gross profit to sales
- Gross profit to costs
- Net profit to sales
- Overhead to sales margin
- Return on capital employed
Return on capital employed:
Return on capital employed (ROCE) should be as high as possible. A negative ROCE would mean that the firm had made a loss. In the UK, ROCEs are typically between 5% and 15%. This will depend on the sector in which the firm operates. Comparable data from other firms. The firms must be in the same industry and should ideally be of a similar size so that meaningful comparisons can be made.
These are mainly measures of financial control. They are rarely seen in media headlines (or any other business stories) because they do not dramatically affect the performance (either in profitability or liquidity) of the firm. As a result, these ratios are more likely to be of interest to internal stakeholders of the firm, (managers, Mr Jones, budget holders, etc). These ratios affect how efficiently the firm operates in terms of its working capital management. As stated earlier, these ratios do not directly affect profit, but improvements in these could affect future profitability.
Use of Asset ratios: This shows how 'effectively' the net assets (total assets less total liabilities) of the firm are being used to generate turnover. It will depend on the industry, but a rising figure may indicate that assets are being used more efficiently to generate extra sales.