Accounting Analysis Flashcards
Main sections of a balance sheet/statement of financial position (3)
Assets owned by the company
Liabilities owed to the company by others
Equity showing total capital amount the shareholders have contributed and are due
Main content of an income statement
Summary of revenue and expenses incurred by the company over that accounting period
Main content of a cash flow statement
Identifies how much cash the company generated over the accounting period and how much as been spent
What organisation is trying to harmonise generally accepted accounting practise (GAAP) throughout the world?
International Accounting Standards Board
Company Accounts vs. Group Accounts (2)
If a co invests in another co, it’s fine to display the original cost of investment in the company accounts
If a co invests and becomes the controller of another co, group/consolidated accounts will need to be prepared where the parent and subsidiary are presented as one entity
What is goodwill on group accounts? (2)
If cost of investment exceeded net assets of the subsidiary co being bought, the excess is described as goodwill
Displayed as an asset in consolidated statements
Types of assets on a statement of financial position (2)
Current and non-current
What is a tangible non-current asset?
Physical assets which are expected to generate economic benefits over a number of accounting periods
What is an intangible non-current asset?
Assets which are expected to generate economic benefits over a number of accounting periods
Depreciation vs amortisation
Depreciation is for tangible assets and amortisation is for non-tangible assets
Straight line depreciation formula
(cost - disposal value) / useful economic life in years
Ways in which equity is displayed in group accounts (4)
Share Capital
Capital Reserves
Revenue Reserves
Non-controlling interests/minority interests
Earnings per share formula
(Net income for financial year - dividends on pref shares) / No of ordinary shares in issue
What is capital expenditure?
Money spent to buy non-current assets e.g. property, equipment
What is revenue expenditure?
Money spent that immediately impacts income statement e.g. wages, rent
What is return on capital employed used for?
It compares the money invested with generated return to measure overall management performance
Return on capital employed formula
(Operating profit/capital employed) x 100
What is financial gearing?
Measure of risk within a co. which looks at the amount of financing that comes from debt and how much come from equity
Risks of a highly geared/leveraged company
Debt to Equity may not be representative as co may have a lot of short term investments that can be easily cashed
More debt means more interest and principal to pay off so default is more likely
Interest Cover formula
Operating Profit/Interest Costs
Price Earnings ratio formula
Current market price per share/earnings per share
What is trailing P/E?
backward looking version of price/earnings ratio which takes net income for the most recent 12 month period
What is forward P/E?
Based on estimated net earnings over next 12 months
Gross dividend yield formula
(Dividend x share price) / 100
