INTERPRETATION

USE THE SCENARIO

LINK THE REASON TO THE SCENARIO
 THE SCENARIO

• INFORMATION - DETAILS OF NON-CURRENT ASSETS

1. REVALUATION
2. A MAJOR ACQUISITION OR
3. DISPOSAL
 THE SCENARIO - ASSET DISPOSAL
1. RESULT IN A PROFIT OR LOSS ON DISPOSAL (SOCI)
2. CASH BEING RECEIVED

• A ONE-OFF ADJUSTMENT - BEARS LITTLE RESEMBLANCE TO FUTURE PERIODS.

• THE DISPOSAL WILL IMPROVE:
(1) ASSET TURNOVER AS THE ASSET BASE BECOMES SMALLER OVER WHICH REVENUE IS SPREAD
(2) ALSO IMPROVE RETURN ON CAPITAL EMPLOYED.

CALCULATE THE RESULTS AGAIN (EG ROCE OR OPERATING PROFIT MARGIN) TO INTERPRET
WITHOUT THE DISPOSAL INFORMATION OR WITH THE DISPOSAL INFORMATION
 THE SCENARIO - ASSET DISPOSAL

• LIQUIDITY POINT OF VIEW:

1. THE CASH RECEIVED ON DISPOSAL OF THE ASSET  INCREASE CASH FLOW DURING THE
YEAR

ANALYSE WHAT WOULD HAVE HAPPENED IF THE COMPANY HAD NOT RECEIVED THIS CASH, FOR
EXAMPLE, ARE THEY ALREADY OPERATING AN OVERDRAFT? IF SO, THE CASH FLOW POSITION
WOULD BE FAR WORSE WITHOUT THE DISPOSAL CASH.
 THE SCENARIO – ASSETS REVALUATIONS

• RESULT IN THE INCREASE OF CAPITAL EMPLOYED BASE

• THE IMPACT OF REDUCING BOTH THE ASSET TURNOVER AND RETURN ON CAPITAL EMPLOYED
RATIOS WITHOUT ANY REAL CHANGE IN OPERATING CAPACITY OR PROFITABILITY.
 THE SCENARIO – ASSETS ACQUISITION

• RESULT IN A DECREASE IN ASSET TURNOVER AND RETURN ON CAPITAL EMPLOYED AS THE

CAPITAL EMPLOYED BASE WOULD GROW.
• RESULT OF THE ACQUISITION  THE COMPANY HAS BECOME LESS EFFICIENT AT GENERATING
REVENUE AND PROFIT