Ch. 10 - Analytical Procedures Flashcards
1
Q
Reliability - things to consider
A
- how reliable is the information being analyzed
- how reasonable is it to compare to benchmarks
- how reliable is prior year information
2
Q
Annualizing
A
If analyzing part way through the year, income statement items need to be annualized
3
Q
Types of analytical procedures (3)
A
- Horizontal analysis
- Vertical analysis
- Ratio analysis
4
Q
Accounts receivable turnover - calculation
A
net credit sales / average AR
5
Q
Inventory Turnover - calculation
A
COGS / average inventory
6
Q
Current ratio - calculation
A
current assets / current liabilities
7
Q
debt to equity ratio - calculation
A
total liabilities / total equity
8
Q
Gross profit margin - calculation
A
(revenue - COGS) / revenue
9
Q
General approach in a case setting (steps)
A
- set your expectations
- compute ratios
- perform horizontal and vertical analysis
- Interpret results
