Analysis of FSs Intro Flashcards
An analysis of financial performance and position composition?
Ratio analysis
Analytical review
What is included in ratio analysis?
Profitability
Liquidity
Working capital
Solvency
Investor
What is included in the analytical review?
Explanation of movement in balance and/or ratio
User focus
Business factors/industry
Accounting policies
One-off items
Examples of explanation in movement and/or ratio?
Current year vs prior year
Company A vs Company B
Examples of user focus?
Shareholders => Risk vs Return
Suppliers/banks => Liquidity/solvency
Competitors => Sales, profits and margins
Government => Profit, job creation
Customers => Service/quality
Examples of business factors/industry?
Manufacturing
Service
Construction
Examples of accounting policies?
Revaluation vs cost model
FIFO vs AVCO
Financial assets
Example of one-off items?
Restructuring (provisions)
Impairment
Acquisition/disposal of subsidiary
Disposal of non-current assets
What is profitability?
Gross margins
Operating margins
Net profit margins
ROCE
Asset turnover
What is liquidity?
Pay off debt as quickly as possible through cash
What is working capital?
Useful for generating cash in a business.
Selling goods on credit
What is solvency?
Long-term working capital and liquidity
Pay off long-term debt (e.g. bank borrowings)
What is investor ratios?
Dividend yield
Dividend cover
EPS
Shareholders => Risk vs Return user focus?
See profits, see dividends paid. Manage risk
Suppliers/banks => Liquidity/solvency user focus?
Want their money back. Liquidity short-term, solvency long-term
Competitors => Sales, profits and margins user focus?
Does Company A have better margins than Company B
Government => Profit, job creation user focus?
More profits, more tax
Investing and recruiting more staff
Customers => Service/quality user focus?
Quality of service and goods provided by the business
Manufacturing business characteristics?
Look at cost of sales and gross profit
Service characteristics?
Low cost of sales
Construction characteristics?
How IFRS 15 has impacted the revenue and margins
Revaluation model vs cost model?
Revaluation model - higher value of assets in FS
Higher assets = more depreciation and lower profitability
FIFO vs AVCO?
FIFO values at most recent purchase price of goods.
If prices icnreases, higher inventory in FIFO than AVCO
Financial assets?
Two different business with same investment. Different intentions mean one might put in SPL and other might put in OCI
Restructuring (provisions)
Provision amde in one period, but not next.
Impairment
Makes results look worse if there is an impairment
Acquisiton/disposal of subsidiary
Consolidate the results. Suddenly performance looks better as subsidiary’s profits are recorded
Disposal of non-current assets?
Profit or loss on disposal, may need to be remvoed to get like–by-like comparison
How does PBIT differ from operating profit?
PBIT is operating profit + non-operating income - non-operating expenses
When inventories are purchased from suppliers on credit? (Payables or receivables)
Payables payment period is used
Characteristics of a supermarket?
Low receivables
Low cash
Medium inventories
Very high payables
What is a settlement discount?
Reduction in amount of money owed by a buyer if payment made within period of time
