2nd topic Flashcards
is the proecss an individual goes through to analyze a companys various financial documents to make an informed decision about that business
Financial Statement Analysis
2 methods of financial statement analysis
Computation Phase
Interpretation Phase
is the comparison of financial statements by representing each line item on the statement as a percentage of another line item
Vertical Analysis
A determination of the percentage increase or decrease in an account from a base time period to successive time periods
Horizontal Analysis
it is conducted to help financial statement users recognize important financial changes that unfold over time
Horizontal Analysis
profit is affected by three basic items
Sales price
Sales volume
Costs
three ways in solving for the factors that affects gross profit
3-way variance analysis
4 way variance analysis
6 way variance analysis
is a relative magnitude of two selected numerical values taken from enterprise financial statements
Financial Ratios
Measure a relationship between two or more components of financial statements
Financial Ratios
Relate to the companys performance in the current period
Profitability Ratios
Shows the company’s ability to generate income
Profitability ratios
They indicate how effectively a company generates profit and value for shareholders
Profitability ratios
shows how a successful business is in earning profits over a period of time in relation to operation costs, revenue and shareholders equity
Profitability ratio
5 profitability ratios
gross profit margin
operating profit margin
net profit margin
return on assets
return on equity
it compares the amount of net income to the average stock holders equity
Return on Equity
which depicts return on equity as the profit margin times total asset turn over times the equity multiplier
DuPoint Model
it indicates how much profit was made
gross profit percentage
it indicates the sales revenue generated for each peso invested in assets during the period
Asset Turnover
it indicates how much revenue the company generates for each peso invested in fixed assets
Fixed asset turnover
It indicates the earnings generated for each share of outstanding common stocks
Earnings per share
It indicates the number of pesos required to buy Php1.00 of earnings
Price /earnings Ratio
It measures the rate of return on the investors common stock investments
Dividend yield
It indicated the proportion of earnings distributed as dividends
Dividend Payout
relate to the companys short-term survival
Liquidity Ratio
It shows the companys ability to use current assets to repay liabilities as they become due
Liquidity ratio
it measures the short-term ability of the enterprise to pay its obligations
Liquidity Ratio
it measured the company’s ability to pay its current liabilities
current ratio
are cash, short-term investments and accounts receivables
Quick ratio
it measures the number of times that the current liabilities could be paid using cash and marketable securities
Cash ratio
it is the time required to complete one collection cycle from the time receivables are recorded
Receivables Turnover
it indicates how frequently inventory is bought and sold during the year.
Inventory Turn over
It measures the number of times that the inventory is replaced during the period
Inventory Turnover
It indicates how frequently raw materials are bought and used in production
Raw materials Inventory Turnover
It indicates how frequently goods in process are continued and finished
goods in process turnover
shows how long the operating cycle of the company is
Days in operating Cycle
it indicates the time required to complete one payment cycle from the time the payables are recorded
Trade Payables turnover
it shows the time from when the cash is used in operations to the time is converted to cash again
Cash Conversion Cycle
It measured the movement and utilization of current assets to meet operating requirements
current asset turnover
relate the company’s long-term survival
Solvency Ratio
It shows the company’s ability to repay lenders when
debt matures and to make the required interest
payments prior to the date of maturity
Solvency Ratio
proportion of assets provided by creditors compared to that provided by owners
Debt to Equity Ratio
It indicates the proportion of total assets that creditors finance
Debt to assets
It indicates how many times the companys interest expense was covered by its net operating income
Time interest Earned
Proportion of total assets provided by creditors
Debt Ratio
Proportion of total assets provided by owners
Equity Ratio
It is useful whenever the company estimates an
increase its future sales level
Sales Forecast
Functional areas of modern financial management
Determining financial needs
Choosing the sources of funds
Financial analysis and interpretation
Cost-Volume-Profit Analysis
Working Capital Management
Dividend Policy
Capital budgeting
