Chapter 31&32

Question 1

What is The Functions of Ratio Analysis

Answer 1

The main function of ratio analysis is to enable users of published financial statements to evaluate the financial performance and financial position of the reporting entity for the purpose of share trading, lending and/or voting
decisions.
This usually takes the form of:
1. Comparisons with other entities (interfirm); and/or
2. Comparisons over time (time series analysis)

Question 2

What is ratio analysis?

Answer 2

Ratio analysis is a technique for the analysis
of financial statements:
◦ direct the user’s focus of attention
◦ highlight areas of good and bad performance
◦ identify areas of significant change

Question 3

What are types of accounting ratios

Answer 3

 Profitability ratios
 Investment ratios
 Liquidity ratios
 Working capital ratios
 Gearing ratios

Question 4

What are Profitability ratios?

Answer 4

1. Return on capital employed (ROCE)
2. Return on equity (ROE)
3. Gross profit margin
4. Net profit margin

Question 5

Return on capital employed (ROCE)?

Answer 5

profit before interest and tax / Share capital and reserves + non-current liablites