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F7 Financial Reporting > 21 Interpretation of financial statements > Flashcards

21 Interpretation of financial statements Flashcards

1
Q

How do you calculate gross profit?

A

Gross profit/revenue x 100

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2
Q

What are some potential reasons for movement in gross profit?

A

Selling prices, sales mix, purchase cost, production cost

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3
Q

How do you calculate operating profit?

A

Operating profit/revenue x 100

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4
Q

What are some potential reasons for movement in operating profit?

A

Gross profit

Expenses admin/distribution

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5
Q

How do you calculate asset turnover?

A

Revenue/capital employed

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6
Q

What are some potential reasons for movement in asset turnover?

A

Increase/decrease in revenue
Increase/decrease in non-current assets
Increase/decrease in working capital

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7
Q

How do you calculate return on capital employed?

A

Profit from operations/capital employed x 100

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8
Q

How do you calculate capital employed?

A

Equity+Non current assets

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9
Q

How are some potential reasons for movement in return for capital employed?

A

Efficiency: moment in asset turnover
Profitability: movement in operating profit
Combination of both

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10
Q

How do you calculate current ratio?

A

Current assets/current liabilities

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11
Q

How do you calculate for quick ratio?

A

Current asset - inventory / current liabilities

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12
Q

What are some reasons for movement in current/quick ratio?

A

Increase/decrease in cash balance
Increase/decrease in inventory
Increase/decrease in receivables
Increase/decrease in payables

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13
Q

How do you calculate inventory turnover?

A

Cost of sales/inventory

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14
Q

How do you interpret inventory turnover?

A

Number of times inventory is turned over in the period

Higher turnover = higher efficiency

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15
Q

How do you calculate inventory holding period?

A

Inventory/cost of sales x 365 days

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16
Q

How do you interpret inventory holding period?

A

Average number of days for which inventory is held

Lower days = higher effifency

17
Q

What are some reasons for movement in inventory holding period?

A

Improved/worse inventory control
Obsolete inventory
Increased level of inventory to stimulate sales

18
Q

How do you calculate receivable collection period?

A

Receivables / revenue x 365 days

19
Q

What are some reasons for movement in receivables collection period?

A

Improved/worse credit control
Irrecoverable debts
Increased credit terms to stimulate sales

20
Q

How do you calculate payables payment period?

A

Payables/credit purchases x 365 days

21
Q

What is the working capita; cycle?

A

Inventory days + receivables days - payable days

22
Q

How do you calculate gearing?

A

Debt / debt + equity x 100%

23
Q

What is the alternative gearing formula?

A

Debt/equity

24
Q

How do you calculate interest cover?

A

Profit before interest/finance costs

25
Q

How do you calculate earnings per share?

A

Profit available to ordinary shareholders / number of ordinary shares

26
Q

How do you calculate price/earnings ratio?

A

Current share price/latest EPS

27
Q

What does a price/earnings ratio show?

A

Represents a measure of market confidence in companies capacity for growth. A high P/E ratio suggests high growth is expected

28
Q

How do you calculate dividend yield?

A

Dividend per share/current share price

29
Q

What does dividend yield represent?

A

Potential return on investment for prospective investors and can be compared to yields available on alternative investments

30
Q

How do you calculate dividend cover?

A

Profit after tax/dividends

31
Q

What does a dividend cover represent?

A

Similar to interest cover, indicates how many times current dividend could be paid from current profit level,. A high cover indicates that dividend level is able to be maintained.

32
Q

What are the three value for money?

A

Effectiveness
Efficiency
Economy

F7 Financial Reporting (22 decks)

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