Chapter 19 Flashcards
What are the four separate stages of gartner data analytics model?
Descriptive
Diagnostic
Predictive
Prescriptive
What are the key areas to consider when performing analysis?
Identification of user
Understanding nature of business
Identification of relevant data sources
Numerical analysis of data available
Interpretation of analysis results
What is data analytics used for?
Help with analysis of financial statements and improve user understanding
What are the profitability ratios?
GPM%
ROCE
What can financial statements be used to analyse?
Performance
Position
Adaptability
Prospects
What are the liquidity ratios?
Current ratio
Quick ratio
What are the efficiency ratios?
Working Capital ratios
Asset turnover ratio
What are the capital structure ratios?
Gearing
Interest Cover
How do you calculate GPM%?
Gross profit/revenue x 100
How do you calculate ROCE?
Operating profit/capital employed x 100
What would cause a change in the GPM%?
Change in product mix
e.g. selling more of a product with higher margin
Changes in direct costs
Changes in selling price
Changes in waste
What would cause a decrease in operating profit margin?
Increase in operating costs could by caused by redundancy payments
What would cause a decrease in ROCE?
Acquisition of Non current assets towards end of period
What are exceptional items?
One-off or irregular events that may distort picture presented within financial statements
What does ROCE show?
Overall performance of the entity
What is EBITDA?
Earnings before interest, tax, depreciation and amortisation
Where should analysis of liquidity start?
Review of bank balance
What does current ratio compare?
Current assets to current liabilities
When is there a risk of overtrading?
When entity grows rapidly
What does quick ratio compare?
Current assets excluding inventory to current liabilities
What does asset turnover measure?
How much revenue is being generated from overall capital invested
What is overtrading?
Inventory, receivables and payables increase but decline in cash and we may be unable to pay suppliers debt
How do we calculate gearing?
Debt/(Debt + equity)
How do we calculate interest cover?
Operating profit/Finance costs
How do we calculate dividend cover?
Profit for the year/dividend
How do we calculate average rate of borrowing?
Finance cost/borrowing
What is gearing an important measure of?
Risk
How do we calculate dividend cover?
Profit for year/dividend
What does low interest cover indicate?
Entities struggling to earn profit to cover interest payment
What does increased gearing indicate?
Increased risk of default of loan finance
What is the limitations of financial reporting data?
Historic data
Only financial information
Lack of detailed information
What may cause difficulties in drawing comparisons between entities?
Changes in entities business
Different accounting policies
Different accounting practices
Different activities
What is creative accounting?
Timings of transactions delayed/sped up to improve results
Classification of items
Revenue recognition policies
Managing market expectations
What are the limitations of financial reporting information?
Timeliness
Size of entity
Comparability
Verification
What are some examples of non-financial information?
Market share
Key employee information
Sales Mix
Product range
Size of order book
What are some examples of additional financial information?
Budgeted figures
Other management information
Industry avarages
Figures for a similar entity
Figures for entity over longer period of time
What is overtrading indicated by?
High profits and low cash generation
Large increases in inventory, receivables and payables
What areas should be reviewed to effectively analyse cash flows?
Cash generated from operations
Investing activities
Financing activities
Net cash flow
If depreciation is less that investment what does it indicate?
Entity investing at greater rate than current assets wearing out
If depreciation is more than investment what does it indicate?
Non-current assets base of entity is not being maintained
What are some financing activities?
Changes in financing
Cash payments to settle outstanding
debts
New finance raised through loans or share issue
