In our case, the increase in value could mean that efficiency of sales, in relation with the inventory, has increased (company's inventories are maintained at a lower level than in 2005).
D2. The Assets to sales ratio stands for the total investment used to generate a certain level of sales. Extreme values can be explained in different methods: an abnormally high percentage may indicate that a company is not being aggressive enough in its sales efforts, or that its assets are not being used at the maximum level of efficiency. A low ratio may indicate that an enterprise is selling more than can be safely covered by its assets, risking to maintain an inferior level of inventory, which may also negatively affect the company's activity. The Assets to Sales ratio is computed by dividing the total assets to the total sales. In 2006 the value of the assets represented 90% of the sales, while in 2005 this percentage was only 63%. This situation can be interpreted by the fact that BSkyB continued its investment policy, so acquiring new fixed and current assets, at a higher pace than the increase in sales. Probably the company realized that the competitive environment of this field urges the players to make important investments in order to maintain, or improve market share.
E. Financial Leverage ratio: offer an indication of the long-term solvency of the company. This ratios, as contrary to the liquidity ones, measure the company's ability to observe its long time obligations - for example a bank may want to know what is BSkyB capacity to pay up a loan, for which the company may need to design and launch a new satellite for its program broadcasting. In my opinion this is a very important indicator for the long-term development of the enterprise, because investments are an essential step in improvement of services, reducing costs, acquiring new clients and improving company's profits. Two of the most important types of these financial ratios are Debt Ratios and Debt-to-Equity ratio. Let us take them one at a time.
E1. Debt Ratio. Computed by the division of total liabilities over total assets, this indicator shows the percentage coverage of debts by assets. For example if the company were in a situation that it could not pay its loans, for different reasons, the banks and financial institution would need to evaluate the enterprise's assets. If the level of the ratio is higher than 1, then this should be an incentive for the bank to offer the loan to BSkyB Company, which may need the funds to continue its development and investment policy. The leverage level of the company in 2006 was 97%, while in 2005 it total liabilities represented 92%. This situation could be translated by the fact that more long-term liabilities of BSkyB are covered by total assets- fixed and current, so the company may obtain credits and loans with more favourable conditions - existence of a grace period, lower interest rate and a lower level of documents required.
E2. Debt-to-Equity. The Social capital can be another source for covering the company's debts. It the value of the assets is inferior to the value of the liabilities, this means that the creditors must settle the obligations with company's shareholders. This indicator may come in handy in here, due to the fact that it exactly indicates the percentage of total liabilities which can be paid with shareholder's contributions. The formula for this financial ratio is the following: Total debt divided by Total Equity. In the BSkyB case, the following figures appear for the observation years: 3.4% in 2006 as compared to 8.8% in 2005. This important increase in the ratio can be explained as the Social capital of the enterprise had decreased in only one year from 187 to 121, due to possible company's buy back policies (BSkyB may require to develop an investment, and needed funds for this thing. The cheapest way to do that is by increasing the social capital, with buy-back shares, on which the company engages to offer these shares to interested investors, with the buying-back promise after a certain period of time - usually one year). However, this decrease does not negatively influences the company's financial...
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