Figures in tables provided by the McGregor Bureau for Financial Analysis (BFA) were calculated according to the standardisation definitions as set out below. Consolidated audited financial statements received before the end of March 2005 were used. For certain companies with financial year-ends towards the end of the calendar year (December 2004), statistics may thus refer to financial years ended during 2003.
The figures used in this publication differ from those as published by the companies. The BFA standardises all the published financial statements. This is because the accounting conventions used by companies differ, which makes it practically impossible to rank companies using their published data. Using the "as published data" will result in comparing apples with bananas. The term "standardisation" is therefore used as certain adjustments are made to the published financial statements of companies to obtain comparable information.
The JSE listed companies, which need to be compared with each other, are diverse. There are also magnitudes of financial items, which need to be considered in the process of standardisation. It is therefore impossible to describe, in a few words, what is to be done with each specific item in the process of standardisation to achieve the goal of comparability. In interpreting and allocating specific items basic accounting principles are, however, followed.
Internal Rate Of ReturnThe internal rate of return is a market-related return where both share price movements and dividends paid are taken into account by way of a discounted cashflow calculation. The share price five years ago (end-March 1999) is taken as a cash outflow and all annual dividends for the next five years (both cash dividends and dividends in specie) as well as the share price at end-March 2004 are taken as cash inflows. The internal rate of return is then quantified by finding the discount rate that equates the present value of all dividends and the share price at end-March 2004 with the share price five years ago (end-March 1999). Naturally all data is adjusted for share splits and share consolidations.
Gold Companies, Financial Companies And The Rest
The structure of the financial statements in the database of the BFA differs between gold companies and all other companies. The reason for this is the difference in the nature of business between the two categories of companies. The definitions of the ratios of the two categories of companies therefore differ, but the meaning and quantification are the same.
Financial companies, comprising the banking, short-term insurance, long-term insurance and financial services sectors, were also treated differently in defining the various ratios. This was done because of the difference in the nature of the business. In all cases care was taken to maintain the comparability of the performance and other measures. In the first place, all ratios are calculated before taking extraordinary and exceptional items in the income statement into consideration. Naturally these items include the profit/loss on transactions in the financial markets. These transactions have been treated as "in the normal course of business" for financial companies but as extraordinary for all other companies. Second , as no turnover in the normal sense of the word exists for banks, the total of interest received, commission earnings, currency exchange earnings and other fees have been used in the place of turnover.
Definitions Of The Most Important Variables Used
Turnover: Total turnover as published by the company. (For banks refer to the aforegoing paragraph).
Total assets: Fixed assets as well as current assets are included. Investments are at market value or directors' valuation at latest balance sheet date. Other assets such as land and buildings are at book value. Where revaluations were not taken into the balance sheet, these were ignored. Where cash balances were netted off against bank overdrafts, the cash balances were added back. Tax paid in advance was netted off against tax payable and only the net amount included.
Cost of control and intangible assets such as goodwill, patents and licences were not included; mining assets were, however, included. Where amounts invoiced on contracts in progress exceed the value of the contracts in progress, the difference is included with retained income; or, if the amounts received consisted of deposits received, the difference was included with creditors. If inventories were valued using Lifo, it was adjusted to reflect the Fifo, or average value.
Market capitalisation: Market capitalisation equals the market value of all fully paid and issued ordinary shares calculated at the closing price of the last trading day of April 2005.
Equity funds: Equity funds (ordinary shareholders' funds) consist of ordinary share capital, all capital reserves and distributable reserves, and adjusted for the same items as the "total assets" above. Provisions included with credit balances such as warranty provisions, provisions for self-insurance and provisions for maintenance were included with long-term loans or creditors in the case of short-term provisions. Deferred tax was regarded as retained profit.
Cost of control and intangible assets were not included with total assets but were deducted from equity funds.
Net profit: Taxed profit attributable to ordinary shareholders excluding extraordinary and exceptional items, deferred tax and amounts transferred to reserves was regarded as retained profit, thus increasing taxed profit disclosed. Provisions are treated as disclosed under equity funds above.
Currency conversion gains and losses were excluded in all cases as it was found that this item is not treated in the same manner by all companies. Also excluded are items such as cost of control written off and prospecting expenditure. The pretax difference in profit between Lifo and Fifo, or average inventory values, was added to net profit. The share of associated companies' retained profits was included.
Pretax profit: The effect of extraordinary and exceptional items is excluded in pretax profit (profit after interest paid but before taxation). Apart from this, the pretax profit has been adjusted with all the variables as described in "net profit" above.
Earnings per share: Headline earnings per share as published by the company have been used in all instances. Where historical earnings per share (as in the case of growth in earnings per share) was used this was adjusted for stock splits and consolidations.
Dividend per share: Dividends per share consist of the total of cash dividends and stock dividends (as a proxy for cash dividends), declared in respect of the years under review.
Debt: Total debt (the sum of long-term interest-bearing debt, short-term interest-bearing debt and current liabilities) have been used in all ratios with the exception of serviced debt to equity and serviced debt as a monetary figure. In these cases the total of long-term interest-bearing debt and short-term interest-bearing debt have been used.
DEFINITIONS OF SOME OF THE RATIOS
Compound growth: In earnings per share, return on equity, return on assets and pretax profit.
The compound growth in the above variables is calculated using the available data for the latest five years available. Where a company has not been listed for five years and financial data is therefore not available for a total of five years, the compound growth has been calculated for the shorter period. Where either or both the beginning or ending figures used in the compound growth calculation is negative, an N/A is indicated. This is done because the result of compound growth calculations, using negative data, would be biased.
Average dividend yield: The average dividend yield for the five years ending December 2004 is calculated. If a company is listed for a period shorter than five years the average dividend yield for the shorter period is given.
Return on assets: Profit before interest but after tax as defined above, divided by total assets as defined above.
Return on equity: Net profit as defined above, expressed as a percentage of equity as defined above.
Interest and financial lease cover: Profit before interest, operating financial lease charges, tax and extraordinary items divided by the total of interest and operating financial lease charges paid.
Debt to equity: The total of long-term interest-bearing debt plus the total of short-term interest-bearing debt (including overdraft facilities utilised) divided by total equity as defined above.
Total serviced debt: The total of long-term interest-bearing debt plus the total of short-term interest-bearing debt (including overdraft facilities utilised).
Cash and cash equivalents: The total of cash, positive bank balances and short-term loans advanced.
Average daily monetary value of shares traded: The average of the daily value of all shares traded during 2004.
Annualisation: Financial statements not covering 12 months were annualised. If more than one financial period was reported on in a calendar year, the results were consolidated and then annualised.
