Financial Statement Analysis Flashcards
Which of the following is true regarding the calculation of EPS? It is:
Profit after tax divided by share capital excluding preference shares
Analysts assess the prospects of companies on their investment potential and also assist the board to assess their company’s position in the current market. Which of the following is the main tool for making these assessments?
Ratio analysis
An uncovered dividend is one paid out of:
Retained earning
How is dividend cover calculated?
Earnings Per Share/Dividend payments per share
Dividend cover
Dividend cover = EPS / DPS
Return on capital employed
Operating profit before interest and tax / (assets - current liabilities) x 100
PE ratio
PE ratio = market price per share / EPS.
Which of the following is most likely to cause an increase in interest coverage?
Switching to depreciate an asset over ten years rather than just five years
share price.
Price/Earnings x earnings/share = share price.
gearing
A measure of the proportion of debt to equity that a company raises
The measure of income return provided by an equity investment is known as which ratio?
Dividend yield
If a company undergoes a stock split, which of the following will have to be restated?
Net asset value per share
Return on capital employed = profit before interest and tax / capital employed.
Return on capital employed = profit before interest and tax / capital employed.
Which of the following events would not lead to a dilution of earning per share?
A negative cash flow
What is net asset value per ordinary share?
(Assets - liabilities) / number of ordinary shares
When using ratio analysis to consider how well a company acquires and manages its resources, we are considering the efficiency of which department?
Finance
An analyst is making comparisons between companies’ enterprise value relative to earnings before interest, tax, depreciation and amortisation. Which of the following would NOT be a factor they will consider?
The true cash earnings of the company
Gross profit margin
Gross profit margin = gross profit / revenues x 100%
Dividend yield
Dividend yield = dividend / market price
Dividend cover
Dividend cover = EPS/dividend.
Share price
Share price divided by EPS gives the PE ratio
Price = PE x EPS
Price = PE x EPS
Dividend cover
Dividend cover = profit after tax / net dividend.
Earnings Per Share
Earnings Per Share = (Net income for the financial year – Dividends on preferred shares) / Number of ordinary shares in issue.
Which of the following statements is most likely to be FALSE regarding a company with a low P/E ratio relative to its sector?
It is likely to have a low dividend yield
Which of the following statements is most likely to be false regarding a company with a low P/E ratio relative to its sector?
It is likely to have a low dividend yield
Dividend cover is calculated by dividing earnings by:
Dividends
Which one of the following is NOT a type of P/E ratio?
Permitted
Return on capital employed takes into consideration which of the following?
Profits before interest and tax
Equity + non-current liabilities
Which of the following makes ratio analysis most beneficial?
Comparing the ratios of companies in a similar sector
EPS is calculated after all of the following except:
Ordinary dividends
If a company has high interest cover on unsecured loan stock which it has recently issued, what is the consequence of this?
Improved market rating
