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FR > 4. Anaylsis of Financial statements > Flashcards

4. Anaylsis of Financial statements Flashcards

1
Q

Name the profitability ratios (4)

A

ROCE
GPM
OPM
Asset turnover

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2
Q

Name the liquidity ratios (5)

A 
Current ratio
Quick ratio
Inv days
rec day
pay days
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3
Q

Name the gearing ratios (2)

A

Gearing

Interest cover

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4
Q

Name the investor ratios (4)

A

EPS
Div yield
Div cover
P/E ratio

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5
Q

What is the ROCE ratio calculation

A

PBIT/ Capital employed (debt + equity)

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6
Q

Define ROCE and list pointers for the analysis

A
  1. How an entity turns its long term finance into profit
  2. Have their been any changes to profit?
    Have their been any changes to funding structure?
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7
Q

What is the Gross Profit Margin ratio calculation

A

Gross profit / Revenue

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8
Q

List pointers for the analysis of Gross profit margin

A
  1. Have sales prices gone up/down?

2. Have COS gone up/down?

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9
Q

What is the Operating Profit Margin ratio calculation

A

Operating profit / revenue

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10
Q

List pointers for the analysis of Operating profit margin

A

increase or decrease of:
Revenue, COS, overheads, staff costs, one off costs, depreciation costs

Has it increased inline with GPM?

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11
Q

What is the Net asset turnover ratio calculation

A

Revenue / Capital employed

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12
Q

Define the use for net asset turnover in analysis

A

How well management can use the net assets at their disposal efficiently to generate sales

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13
Q

What is the Current ratio calculation

A

current assets/ current liabilities

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14
Q

Define Current ratio and list pointers for the analysis

A
  1. adequacy to meet current liabilities with current assets
  2. Low ratio is concerning as there could be a failure to meet liabilities
    High current ratio, cash wasted that could be used for investment
    High trade receivables = not collecting them fast enough
    High inventory = potentially slow at moving stock
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15
Q

What is the Inv turnover period calculation

A

Inventory / COS

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16
Q

List pointers for the analysis of inv turnover

A

High turnover period could mean there are inventory control issues

May be a one off from bulk purchases to save cash

17
Q

What is the receivables collection period calculation

A

Trade receivables / credit sales or sales

18
Q

Define receivables collection period and list pointers for the analysis

A
  1. how long on average it is taking to collect debts
  2. If high amount, there may be an issue with credit control

If too short, then could be a potential cash flow issue

19
Q

What is the purchases payment period calculation

A

Trade payables / credit purchases / COS

20
Q

Define purchases payment period and list pointers for the analysis

A
  1. How long it takes on average its taking for the company to pay suppliers
  2. If its high, there may be cash flow issues and if continues, suppliers could refuse supply or reduce credit

If the company has good credit terms with a supplier, it will be high

If the company has a low payment period, it may not be properly utilising its credit

21
Q

What is the gearing 1 calculation

A

Debt/ equity or loans + PSC / Ord SC + reserves + NCI (if group)

22
Q

What is the gearing 2 calculation

A

Debt/ equity or loans + PSC / Ord SC + reserves + NCI (if group) + PSC

23
Q

Define gearing and list pointers for the analysis

A
  1. Show us the degree of risk attached to the company
  2. Increase of risk with higher gearings / external finance
    May not be able to get future credit from lenders if too high

Debts represented with liabilities that need to be paid every year (equity optional with divs but PSC obligatory divs)

24
Q

What is the interest cover calculation

A

PBIT/ interest payable

25
Q

What is the interest cover calculation definition

A

How many times can you pay finance liabilities with profits

26
Q

What is the dividend yield calculation

A

Dividends / Share price (MV)

27
Q

list pointers for the analysis with div yield calcs

A

Low div yield means that maket is expecting this div payment to grow in future

As SP is adjusted to speculate good investment/ good returns in future

28
Q

What is the dividend cover calculation

A

PBIT / dividends

29
Q

Define Dividend cover and list pointers for the analysis

A
  1. A calc that looks at how excessive/conservative the company pays its dividends from profits

The calc shows how many times it can cover its dividend payments

If it can’t cover there will be cash flow issues in future

30
Q

what is the issue with historical cost accounting

A

If an item has been been revalued to its present value, readers of the FS cannot make an economic decisions as the figures are not relevant/ up-to-date

31
Q

What is the issue with seasonal trading and ratios

A

May have a huge impact on ratio comparisons with other entities in the sector if their year ends/ period ends differ

32
Q

What is the issue with ratios and NFP organisations

A

As profit is not their main objective, key ratios like ROCE, NA turnover, GPM, OPM and EPS are not relevant

33
Q

List some other useful information that may help make a economic decision in relation to the FS

A 
Cashflows
News reports
Share price MV
Minutes/board meetings
Staff turnover
Budgets
Internal memos
future plans
CEO reports
Audit reports
company objectives

FR (3 decks)

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