Blog entries about iClass - a Learning Management System
It is all about the analysis of history and the reasonable assumption that all things would remain equal – for if anything fundamental changes, it all starts to crumble.
Financial ratios help to provide clues, specifically for identifying trends pointing towards good or bad performance, and spotting significant deviations from average expectations such as: how well a business entity has handled its business in the past, areas where the business is weak and needs to be improved and how well a business could perform going forward.
There are many variants we can compute from a company’s statements like: Profitability ratios, Solvency ratios, Liquidity ratios and Equity ratios – all the ratios hold the potential to aid our ability to predict how well the business would do in the near future. The type of ratio you choose is influenced by your specific need – It is however best to combine various ratios in order to get a better grasp of the business being analyzed
Every manager must recognize that ratios have limitations which if ignored, can be insidious. The first drawback is in the differences that are found in the accounting methods employed by various companies in recording their data. It is important to verify the method utilized before financial figures of companies are compared.
The most critical of the limitations however, in my opinion, is the reliance of ratios on past events; considering that financial statements, which form the key pool of information used to compute financial ratios, are simply documents prepared to show the past performances and events of an entity, and unable to give any insight on what could happen in the future.
Lets play around this idea a little. Consider an investment proposal based on well computed financial ratios for investments in 2020, how well would the business have fared in the current COVID-19 business world? Not very well I would wager. Hence, a smart manager cannot afford to make ratios the only basis of decision making.
A good understanding of the potential of the business which may not be included in the bulky financial statements must be obtained and combined with the information derived from the computed ratios in order to make smarter business decision. This alludes to the fact that ratios are not substitutes for the intuition of a skilled manager. Yet with that said, we must also understand the history in order to chart a path for the future.
To interpret the result of regression analysis when the
analysis is run with the data analysis tool, four items in the presented result
are of interest. The items include the following:
- R Square value – This is the coefficient of determination and it defines how much the independent variable explains the changes in the dependent variable. For example, a regression analysis result for the model given as "sales = f(advert, price)" with R Square value of 0.8 means that 80% of the changes in sales can be explained by advert and price. The remaining 20% is explained by other factors captured by the error term.
- F statistics – This shows the overall significance of the effect of the independent variable(s) on the dependent variable. It is the same as the probability value (P-value) in a single regression model but gives the overall significance in a multiple regression model.
- Coefficient – This gives the relationship between the dependent and the independent variable(s) in the sense of having either a positive or an inverse relationship. The intercept is usually ignored in the result interpretation.
- P-value – This explains cause and effect. It shows the individual impact of the independent variable(s) on the dependent variable. A p-value greater than 0.05 means that the independent variable has no significant impact on the dependent variable whereas a p-value equal to or less than 0.05 means that the independent variable has a significant impact on the dependent variable. The t-value also shows the same cause and effect just like the p-value. For t-value, a value greater than 2 means that the independent variable has a significant impact on the dependent variable while a value less than 2 means that the independent variable has no significant impact on the dependent variable. It is advised to use the p-value to interpret cause and effect to avoid being misled.
To forecast, only the independent variable(s) with significant impact on the dependent variable is/are used.
You about getting married to a lady. You have not had sex with her and then you discover that she is pregnant. What would you have done?
Well, we do know what someone did. His name is Joseph, foster father of Jesus and spouse of Mary.
In the Gospel of St Matthew Chapter 1 verse 19, we read: Joseph her husband, being a just man and not wanting to disgrace her, planned to send her away secretly.
Joseph had the choice of ‘exposing’ Mary and have her publicly humiliated and stoned to death as an ‘adulteress’. Being a just man, who would not condone such evil (he must have secretly scolded Mary and in tears asked her why), but he would not want to make a public show of Mary who has “disappointed” him, no matter the pain he feels.
In our world of today, we seem to derive joy and happiness in ridiculing people. Mistakes/failures of other people are blown to the high heavens. It seems to give us joy to expose the secrets, failures, inadequacies and woes of others. We seem to love making a caricature of people’s looks, flops and weaknesses. We seem to derive joy in not only sharing “leaked videos” of people but also in clicking and viewing them (because viewing them is in the same position as posting or sharing it). Leaked videos of people get the highest clicks and views, and we are happy “breaking the news” and chatting it away with friends and families.
Perhaps we could learn from St Joseph and try to cover the “nakedness” of others. Possibly we could stop reading such news or originating them ourselves.
We do not need to know how your neighbour always beating his wife. We know it is something bad. Talk to him privately. Pray for him. Use the necessary means to help them.
Thank you for telling me how Mama Nkechi stole orange in the market, but how has that helped you and me? How has it helped her?
I am not aware of any blessing for those who spread “bad news”, even though the news is true, but How lovely on the mountains are the feet of him who brings good news, who announces peace and brings good news of happiness, Who announces salvation, And says to Zion, "Your God reigns!” (Isaiah 52:7).
Honestly, we seem to be so much in love with bad news.
Let the attitude of this just man, this Carpenter from Nazareth, St Joseph, the foster-father of Our Lord Jesus be a lesson for our world today, a world hungry for bad news.
The World Health Organization has said there is no evidence patients who recovered from Coronavirus can't get reinfected.
“Most of these studies show that people who have recovered from infection have antibodies to the virus. However, some of these people have very low levels of neutralizing antibodies in their blood, suggesting that cellular immunity may also be critical for recovery.
“As of 24 April 2020, no study has evaluated whether the presence of antibodies to SARS-CoV-2 confers immunity to subsequent infection by this virus in humans.
“Laboratory tests that detect antibodies to SARS-CoV-2 in people, including rapid immunodiagnostic tests, need further validation to determine their accuracy and reliability. Inaccurate immunodiagnostic tests may falsely categorize people in two ways.
“The first is that they may falsely label people who have been infected as negative, and the second is that people who have not been infected are falsely labelled as positive. Both errors have serious consequences and will affect control efforts.
“These tests also need to accurately distinguish between past infections from SARS-CoV-2 and those caused by the known set of six human coronaviruses. Four of these viruses cause the common cold and circulate widely. The remaining two are the viruses that cause Middle East Respiratory Syndrome and Severe Acute Respiratory Syndrome. People infected by any one of these viruses may produce antibodies that cross-react with antibodies produced in response to infection with SARS-CoV-2.”
The WHO stated that some governments who want a gradual return to
work and the resumption of economic activity, have put forward the idea
of issuing documents attesting to the immunity of people on the basis of
serological tests revealing the presence of antibodies in the blood. It
however added that the serological tests currently used “need
additional validation to determine their accuracy and reliability”.
The International health agency also stated that though it supports studies that will provide data on the percentage of people with detectable COVID-19 antibodies, however most of them are not designed to determine whether those people are immune to secondary infections.
Today's class enlightened me more about Regression, its types and the uses/applications in business environments.
Regression analysis shows the relationship between two or more variables; it also shows causality and can be used to forecast/predict.
In regression analysis, a model must be correctly specified into the dependent and independent variables in order to achieve the objectives for which the analysis is being carried out.
The types of regression models include:
1. Simple Regression model: which could be linear or non-linear and is differentiated by (1 dependent variable, 1 independent variable)
2. Multiple Regression model: which could be linear or non-linear and is differentiated by (1 dependent variable, 2 or more independent variables)
We have the following as the methods for the analysis of financial statements
1. Vertical Analysis: For a single financial statement, each item is expressed as a percentage of a significant total. Examples are income statement items that are expressed as a percentage of Sales
2. Horizontal Analysis: This is when you make use of comparative financial statements to calculate dollar or percentage changes in financial statement item from one period to the next horizontally
3. Common Size Statements: These are financial statements that show only percentages and no absolute dollar amounts
4. Trend Percentages: This shows changes over time in given financial statement items
5. Ratio Analysis: Is the expression of logical relationships between items in a financial statement of a single period. An example is a percentage relationship between net income and revenue
In today's corporate financial accounting webinar, we dug dipper into understanding financial statements. The main topic was about the different financial ratios, calculating them and how they can be applied.
They are :
1) Working capital ratio
2) Debt to Equity ratio
3) Price earning ratio
4) Acid test(quick ratio)
5) Inventory turnover
6) Equity ratio
7) Net profit margin
8) Return on Equity
9) Earning per share
10) Account receivable turnover
It was a rather interesting class, and the facilitator explained each ratio and meaning easily, and now I am enlightened on financial ratios.
US oil prices turned negative for the first time in history amid the deepest fall in demand in 25 years. A flood of unwanted oil in the market caused the West Texas Intermediate (WTI), the benchmark price for US oil, to plummet to almost -$40 a barrel after the fastest plunge in history. That meant producers were paying buyers to take oil off their hands.
Why would oil sellers pay others to take the commodity? In the oil market, the law of supply and demand is subtle. The price of oil is set in the oil futures market. This means buyer signs a contract to buy barrels at a specified amount at a particular date in the future. Under a futures contract, buyers and sellers are expected to go through the deal as implied at the specified date. A seller might have lots of contracts and lesser space. So, will need to offload the present commodities to accommodate future commodities.
Does it mean Nigeria’s crude oil is worthless? No. Nigeria oil is not worthless and it is currently not trading at the negative. The current worth is $25.57 a barrel. However, since the nation’s 2020 budget was predicated at $53 per barrel of crude oil, this may present economic problems. President Muhammadu Buhari has however constituted a committee to revisit the budget since the emergence of the drop in oil prices.
What is the cause of the fall in price? The decline in oil prices has been persistent for a while. According to the US Energy Information Administration (EIA), Crude oil prices were generally lower in 2019 than in 2018. However, the coronavirus disease (COVID-19) outbreak made things worse in 2020. Companies can no longer produce in full capacity and thus lower demand for the commodity (oil). And oil-producing countries are still producing massively, making the market overflooded.
Any hope for the future? Yes. If the coronavirus disease can be completely curbed, there will surely be an improvement in the oil prices since companies’ production will return to normal; invariably demand is expected to be more than present.