Cash flows and financial statement analysis Flashcards
What is the purpose of the statement of cash flows?
to show the reasons for the change in cash and bank balance over the year
What are the three sections included in the cashflow statement?
1) cash flows from operating activities
2) cash flows from investing activities
3) cash flows from financing activities
What is included in operating activities
- sale of goods and services
- collection of interest and dividends
- purchase of inventory
- payment of operating expenses
- payment of interest
- payment of income taxes
Investing activities
- sales of investments
- sale of long-term assets
- collection of notes receivable
- purchase of investments
- lending with notes receivables
Financing activities
- issuance or repayments of notes payable
- issuance of stock
- payment of dividends
What is vertical analysis
expressing each item in a financial statement as a % of the same base amount measured in the same period
Horizontal analysis
analyzing trends in financial statement data for a single company over time
Return on capital employed equation
profit before interest and tax/capital employed
gross profit margin
gross profit/net sales
operating profit margin
operating profit/net sales
net profit margin
net profit/net sales
return on assets
net profit/(average)total assets
return on equity
net profit/average equity
current ratio
current assets/current liabilities
gearing ratio
long term loans/equity + long term loans
dividends yield
dividend/market price
earnings per share
net profit/number of ordinary shares
P/E ratio
market price per share/earnings per share
return on equity
net profit/equity
