Analysis of financial statements

Question 1

Profitabiltiy

Answer 1

the degree of success of a business to create wealth for the owners

Question 2

Efficiency

Answer 2

how effective resources have been utilized by the business

Question 3

Liquidity

Answer 3

the ability of the company to survive short term

The ability to meet short term obligations when they fall due

Question 4

Gearing

Answer 4

• the extent to which a company is financed by outside parties.
  the relationship between the amount financed by the owners of the business and the amount contributed by external parties
  Gives the degree of risk associated with the business

Question 5

Investment

Answer 5

asses the returns and performance of shares held by the business

Question 6

How to compare ratios?

Answer 6

Past Period
Planned Performance (targets)
Industry averages

Question 7

Working Capital Cycle calculation

Answer 7

Acc Receivable turnover plus inventory turnover

Question 8

What is the working capital cycle

Answer 8

measures the time it takes for inventory to be converted to accounts receivable and AR to cash