F2E - Chapter 19: Analysis of financial statements Flashcards
What 4 stages does the garner data analytics maturity model group data analytics into?
Descriptive (what happened?)
Diagnostic (why it happened?)
Predictive (What is going to happen?)
Prescriptive (how can we make it happen/prevent it happening?)
What are the key areas to consider when performing an analysis of the financial statements?
Identification of the user
Understanding of the nature of the business
identification of relevant sources of data for analysis
Numerical analysis of the data available
Interpretation of the results of the analysis
What are the profitability ratios?
Gross profit margin
Operating profit margin
Net profit margin
ROCE
What is the liquidity ratio?
Current and quick ratios
What are the efficiency/activity ratios?
Working capital ratios
Asset turnover ratios
What is the capital structure ratios?
Gearing
Interest cover
What is EBITDA an acronym for?
Earning before interest, tax, depreciation and amortisation
How can we analyse efficiency/activity?
Inventory holding period
Receivables collection period
Payables payment period
Asset turnover
Non-current asset turnover
What are some action that could result from analysing financial statements?
Pursuing the acquisition of a particular target company
Deciding whether to continue to provide finance to a credit customer
Searching for alternative suppliers if it is considered that a current supplier may go bust
Deciding what strategic approach the business should take
Decisions regarding selling or retaining current investments in shares
Agreeing to provide new financing or to withdraw existing finance from borrowers
What are the limitations of financial reporting information and data?
Only provide historic data
Only provide financial information
Filed at least 3 months after reporting date reducing its relevance
Limited information to be able to identify trends over time
Lack of detailed information
Historic cost accounting does not take into account inflation
What is the difficulties in drawing comparisons between different entities?
Comparisons affected by changes in the entity’s business
Different accounting policies between different entities
Different accounting practices between different entities
Different entities within the same industry may have different activities
Non-coterminous accounting periods
Different entities may not be comparable in terms of size
What are some additional financial information that could be useful to analysts?
Budgeted figures
Other management information
Industry averages
Figures for a similar entity
Figures for the entity over a longer period of time
What are some non additional financial information that could be useful to analysts?
Market share
Key employee information
Sales mix information
Product range information
The size of the order book
The long-term plans of management
Environmental policies
Third party documents
