Financial Analysis Flashcards
Which one of the following statements about operational gearing is typically correct?
A profitable company with:
- High fixed costs is considered to have low operational gearing
- High variable costs is likely to have high operational gearing compared to one with high fixed costs
- High operational gearing will be able to take advantage of a lower fixed cost base if turnover starts to reduce
- High operational gearing will generate greater additional net profit with sales growth compared to a company with low operational gearing
High operational gearing will generate greater additional net profit with sales growth compared to a company with low operational gearing
A company has agreed 30 days credit with suppliers. Most of its customers pay by cash. Given the following information calculate both the business cycle and the funding gap.
Stock days 23
Debtor days 32
Creditor days 27
- Business cycle: 23 days; Funding gap: (36) days
- Business cycle: 55 days; Funding gap: 28 days
- Business cycle: 59 days; Funding gap: 36 days
- Business cycle: 82 days; Funding gap: 55 days
Business cycle: 55 days; Funding gap: 28 days
Use working capital expressed as a percentage of turnover with gross profit margin (pre
depreciation) to calculate the approximate short term borrowing requirement per £1,000k of sales.
£k Stocks 8,500 Trade Debtors 8,400 Cash 2,500 19,400
Trade Creditors 5,400
Loan and overdrafts 10,200
15,600
Net current assets 3,800
Turnover 22,300
Gross profit 6,700
Depreciation (in cost of sales) 3,900
- £13k
- £31k
- £41k
- £80k
£41k
What is the breakeven margin of safety, based on the figures in the table?
Turnover £8,700k
Gross Profit £3,900k
Fixed Costs £3,000k
- 15%
- 23%
- 35%
- 45%
23%
Operating margin is 6%. Net working capital to sales (or funding gap) is 12%. Turnover is forecast to grow from £18,000k to £26,000k. What is the maximum additional facility the business will require to fund working capital?
- £480k
- £960k
- £2,160k
- £3,120k
£960k
The figures in the table below are taken from the Year 1 accounts for a business.
Turnover £4,500k
Fixed asset turnover 6 times
Current net book value of fixed assets £750k
What will be the turnover in Year 2 if capital expenditure is £500k and fixed asset turnover reduces to 4 times? (Ignore depreciation and assume the business receives a full year’s benefit of fixed assets in the year of purchase)
- £2,000k
- £3,000k
- £5,000k
- £7,500k
£5,000k
Your customer has told you they are about to invest in new production capacity. This should lead to an increase of 8 percentage points in gross margin, although fixed costs will increase by £150k.
Assuming a 10% increase in turnover what will be the change in net profit?
Turnover £3,750k
Gross Profit £2,100k
Net Profit £500k
- £150k
- £390k
- £650k
- £890k
£390k
Referring to the table, what will be the impact on repayment capacity if the following changes occur?
- Net working assets : Sales increase to 25%
- Capital expenditure increases to £2,500k
£k Sales 17,500 Operating profit 2,400 Net working assets : Sales 17.5% Capital expenditure 1,250
- £(5,625)k
- £(3,125)k
- £(2,563)k
- £63k
£(2,563)k
Which one of the following statements about the return on assets (PBIT/Assets) is correct?
Return on assets is a product of:-
- Asset utilisation and turnover
- Return on capital and working capital
- Total Funding and profit margin
- Profit margin and asset utilisation
Profit margin and asset utilisation
Which one of the following will decrease the working capital requirement?
- Decrease stock days
- Decrease creditor days
- Increase debtor days
- Increase raw material days
Decrease stock days
The figures below have been taken from Year 1 Accounts for a business
Turnover £1,500,000
Fixed Asset Turnover 2 Times
Net Book Value of Fixed Assets £ 750,000
At the start of Year 2, the business incurred capital expenditure of £200,000 and management estimate that the fixed asset turnover will increase to 3 times. What will turnover be in Year 2?
(Ignore depreciation and assume a full year’s benefit of fixed assets in the year of purchase)
- £1,650,000
- £1,900,000
- £2,250,000
- £2,850,000
£2,850,000
What is the benefit of a debt service cover covenant?
- Assesses the level of interest cover from operating profits
- Assesses whether debt carried by the business is within acceptable limits
- Assesses overdraft utilisation
- Assesses ability to meet short term debt repayments
Assesses ability to meet short term debt repayments
Which one of the following ratios will tell you how efficient the business is at generating sales for its asset base?
- Gross Profit / Turnover
- Pre Tax Profit / Total Capital and Reserves
- Turnover / Total Capital, Reserves and Debt
- PBIT / Total Capital, Reserves and Debt
Turnover / Total Capital, Reserves and Debt
Which one of the following best describes how fixed costs are adjusted to calculate the financing break even level of sales?
- Fixed Costs less Depreciation plus full Debt Servicing Costs over next 12 months
- Fixed Costs plus full Debt Servicing Costs and projected Capital Expenditure over next 12 months
- Fixed Costs less Depreciation plus Interest and Financing Charges
- Fixed Costs plus full Debt Servicing Costs over next 12 months
Fixed Costs less Depreciation plus full Debt Servicing Costs over next 12 months
The Net Working Capital requirement as a percentage of Turnover is 10%. Turnover is forecast to grow from £25,000,000 to £35,000,000. What is the maximum additional facility the business will require to fund Working Capital?
- £250,000
- £500,000
- £1,000,000
- £3,500,000
£1,000,000
