Chapter 15 & 16: The Cash Flow Statement & Ratio Analysis Flashcards
The Cash Flow Statement
How Can Profit Differentiate From Cash?
- Preperation of Accounts on an Accruals Basis
- Judgements
The Cash Flow Statement
What is The Main Purpose of The Cash Flow Statement?
To Show The Liquidity of a Business.
(Reconcile Difference Between Profit & Cash)
If a Business Can Meet its Debts as They fall Due.
The Cash Flow Statement
‘Cash & Cash Equivalents’ Have a Direct Link to?
The Bank Entry in The Balance Sheet.
(C&CE - Previous Period’s Bank Entry = Current Period’s Bank Entry)
Could Appear as an Overdraft.
The Cash Flow Statement
Why Does an Adjustment Need to be Made For The Profit/(Loss) on The Sale of a Fixed Asset?
It is a Non-Cash Transaction.
The Cash Flow Statement
Items in The P&L Which Are Not Cash Need to be Taken Out of?
The Operating Activities Section.
* Depreciation Expense For The Year - Add Back to Profit
* Profit/(Loss) on Sale of a Fixed Asset - Reverse The Effect
The Cash Flow Statement
The Actual Sale Proceeds Received on The Sale of a Fixed Asset Need to be Included as a:
Cash Inflow in The Investing Activities Section.
* Proceeds on Sale of a Fixed Asset - Cash Inflow
* Purchase of a Fixed Asset - Cash Outflow
The Cash Flow Statement
FRS 102 Details The Requirements For?
Companies, in Respect of Constructing The Cash Flow Statement as Part of Their Accounts.
The Cash Flow Statement
How do we Get From Cash Generated From Operations to Net Cash From Operating Activities?
Less: Interest Paid
Less: Taxation Paid
Interpretation of Accounts - Basic Ratio Analysis
Accounting Ratios Should be Used to Compare Current Period Performance With:
- Previous Years Performance;
- Current Years Budgeted Performance;
- Performance of Competitors (With Similiar Businesses); and
- An Industry Average (Where Available).
Interpretation of Accounts - Basic Ratio Analysis
Accounting Ratios Are Used to?
Identify Trends & Anomolies, Which Need to be Investigated Further.
They Should be Viewed in Conjuction With:
* The P&L a/c;
* The B/S; and
* The Cash Flow Statement.
Interpretation of Accounts - Basic Ratio Analysis
What Other Way Can ROCE be Written?
Operating Profit Margin x Asset Turnover
Interpretation of Accounts - Basic Ratio Analysis
If Stock is Held For Long Periods, There is a Greater Chance of?
Stock Obsolescence.
Interpretation of Accounts - Basic Ratio Analysis
The Debtors Ratio Should be Compared With?
The Credit Terms Given to Customers.
The UK Average is 30 Days.
Interpretation of Accounts - Basic Ratio Analysis
What Capital Gearing Ratio Would a Potential Investor See as a Risky Investment?
50% or Higher.
* Debt Interest Paid in Priority to Dividends
Interpretation of Accounts - Basic Ratio Analysis
What is The Interest Cover of a Business?
How Many Times Interest Payments Are Covered With The Businesses Operating Profit.
