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F2 Resit > Chapter 19 > Flashcards

Chapter 19 Flashcards

1
Q

What are the four separate stages of gartner data analytics model?

A

Descriptive
Diagnostic
Predictive
Prescriptive

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2
Q

What are the key areas to consider when performing analysis?

A

Identification of user
Understanding nature of business
Identification of relevant data sources
Numerical analysis of data available
Interpretation of analysis results

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3
Q

What is data analytics used for?

A

Help with analysis of financial statements and improve user understanding

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4
Q

What are the profitability ratios?

A

GPM%
ROCE

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5
Q

What can financial statements be used to analyse?

A

Performance
Position
Adaptability
Prospects

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6
Q

What are the liquidity ratios?

A

Current ratio
Quick ratio

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7
Q

What are the efficiency ratios?

A

Working Capital ratios
Asset turnover ratio

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8
Q

What are the capital structure ratios?

A

Gearing
Interest Cover

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9
Q

How do you calculate GPM%?

A

Gross profit/revenue x 100

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10
Q

How do you calculate ROCE?

A

Operating profit/capital employed x 100

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11
Q

What would cause a change in the GPM%?

A

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

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12
Q

What would cause a decrease in operating profit margin?

A

Increase in operating costs could by caused by redundancy payments

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13
Q

What would cause a decrease in ROCE?

A

Acquisition of Non current assets towards end of period

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14
Q

What are exceptional items?

A

One-off or irregular events that may distort picture presented within financial statements

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15
Q

What does ROCE show?

A

Overall performance of the entity

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16
Q

What is EBITDA?

A

Earnings before interest, tax, depreciation and amortisation

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17
Q

Where should analysis of liquidity start?

A

Review of bank balance

18
Q

What does current ratio compare?

A

Current assets to current liabilities

19
Q

When is there a risk of overtrading?

A

When entity grows rapidly

20
Q

What does quick ratio compare?

A

Current assets excluding inventory to current liabilities

21
Q

What does asset turnover measure?

A

How much revenue is being generated from overall capital invested

22
Q

What is overtrading?

A

Inventory, receivables and payables increase but decline in cash and we may be unable to pay suppliers debt

23
Q

How do we calculate gearing?

A

Debt/(Debt + equity)

24
Q

How do we calculate interest cover?

A

Operating profit/Finance costs

25
Q

How do we calculate dividend cover?

A

Profit for the year/dividend

26
Q

How do we calculate average rate of borrowing?

A

Finance cost/borrowing

27
Q

What is gearing an important measure of?

A

Risk

28
Q

How do we calculate dividend cover?

A

Profit for year/dividend

29
Q

What does low interest cover indicate?

A

Entities struggling to earn profit to cover interest payment

30
Q

What does increased gearing indicate?

A

Increased risk of default of loan finance

31
Q

What is the limitations of financial reporting data?

A

Historic data
Only financial information
Lack of detailed information

32
Q

What may cause difficulties in drawing comparisons between entities?

A

Changes in entities business
Different accounting policies
Different accounting practices
Different activities

33
Q

What is creative accounting?

A

Timings of transactions delayed/sped up to improve results
Classification of items
Revenue recognition policies
Managing market expectations

34
Q

What are the limitations of financial reporting information?

A

Timeliness
Size of entity
Comparability
Verification

35
Q

What are some examples of non-financial information?

A

Market share
Key employee information
Sales Mix
Product range
Size of order book

36
Q

What are some examples of additional financial information?

A

Budgeted figures
Other management information
Industry avarages
Figures for a similar entity
Figures for entity over longer period of time

37
Q

What is overtrading indicated by?

A

High profits and low cash generation
Large increases in inventory, receivables and payables

38
Q

What areas should be reviewed to effectively analyse cash flows?

A

Cash generated from operations
Investing activities
Financing activities
Net cash flow

39
Q

If depreciation is less that investment what does it indicate?

A

Entity investing at greater rate than current assets wearing out

40
Q

If depreciation is more than investment what does it indicate?

A

Non-current assets base of entity is not being maintained

41
Q

What are some financing activities?

A

Changes in financing
Cash payments to settle outstanding
debts
New finance raised through loans or share issue

F2 Resit (18 decks)

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