Exam 2 - Chapter 6 - Descriptive Analytics Flashcards
What is the largest source of accounting data for performing descriptive analytics?
The annual report that contains:
- Balance Sheet
- Income Statement
- Statement of stockholder’s equity
- Statement of cash flows
- Footnotes
What is contained within the footnotes of financial statements?
Details on the following:
- Expected annual cash payments for LT debt and leases
- Accounting policies chosen
- Pension plan assumptions
- Segment performance
- Stock market performance
The 10-k contains some information beyond the annual report;
What is this additional infomration?
- Management compensation (stock options/ownership)
- Board compensation
- Biographies of board
- Board committee membership
What are descriptive statistics?
- What are the two main groups?
Tools for descriptive analysis:
Brief summaries of a data set that provide a representation of the data as a whole
Two groups:
- Measures of central tendency
- Measures of variability
Measures of central tendency (descriptive statistics) include:
Mean
median: most useful when there are extreme or skewed observations)
Mode
Measures of variability (descriptive statistics) include:
Minimums and maximums: measures of extreme values
Standard deviations: Measure that shows the variability for the sample of population
Quartiles: Division of data observations into four defined intervals
Deciles: Division of data observations into 10 defined intervals
Beyond measures of central tendency and variability, what other tools are used for descriptive analysis?
- Counts:
- Totals, subtotals
- Graphs:
- Percentage change:
- Pivottables
- Histogram
- Ratio analysis
- Vertical analysis
- Horizontal analysis
What is the difference between:
- Vertical Analysis
- Horizontal Analysis
Vertical Analysis
Express financial information in relations to some figure as a base
(what is interest expense in relation to net sales, etc…)
Horizontal Analysis
Provide comparitive changes of financial statement items over time
(what is % increase in A/R from prior period to this period, etc…)
How can pivottables/charts be used to measure accounts receivable aging?
Each item past due can be placed into buckets (groups like 1-30, 31-60, etc…) using a pivot table.
Charts can then illustrate the various aged receivables
After the accountant creates descriptive analytics of aging accounts receivable, how might they create diagnostic analytics to further make sense?
Use CRM system that collects nearly all info about customer:
- Determine if customer has dispute with products
- Determine if customer is continuing to purchase
- Develop statistical models based on customer profitability debt, and credit
What is DuPont Ratio Analysis?
Used to decompose performance (return on equity) into three component parts:
- Profitability (profit margin)
- Activity (asset turnover)
- Solvency ratios (financial leverage)
What is the equation for DuPont’s return on equity?
ROE = Profit margin * asset turnover * financial leverage
What are the equations for:
Profit margin
Asset turnover
Financial leverage
Profit margin = Net profit / sales
Asset turnover = Sales/total assets
Financial leverage = Total assets/Equity
What exactly is return on equity?
What is the simple equation?
Measure of profitability generated for each dollar of stocholder’s investment
Simple Equation = Net Income / Stockholder’s equity
What is DuPont’s analysis for Return on Assets (ROA)?
Measure of profitability for each dollar of assets:
ROA = Profit margin * Asset turnover
