Financial statement analysis H3 Flashcards
What is on the right of the financial statement
Assets
What is on the left of a financial statement
Equity and liabilities
More liquid assets and shorter term liabilities are higher up in the statement of financial position
True
If an asset or liability is current they can only be collected in more than a year
No, less than a year
What is IFRS
the accounting standard mandated by the EU, it values assets by fair value as if they were sold on a theoretical market
Almost all countries allow companies to carry forward losses theyve made in previous years to offset their tax bills
True
What are common size financial statements
Statements where compariso is made easyer by denominating values in percentages
Financial ratios are always calculated the same way
No, apparently there are differing traditions which can and will cause confusion
Who cares about the current ratio
Short term creditors f,ex suppliers
is a current ratio of less than one bad
Yes, that means short term liabilities are less than short term assets
What is ebit
income before tax and interest payments summed
What does the interest coverage ratio tell us
How many times over a firm can make its current interest payments although depreciation distorts it a bit. If you add back the depretiation you get the cash coverage ratio
What does recievable turnover tell us about a company
How long on average it takes for a firm to pay its bills
What does the dupont relationship tell us
That ROE can be increased by utilizing assets more efficiently (ATO), by taking out more debt (leverage) or by increasing profit margins
How do you know what industry a firm is in
By the SCI or NACE code. A problem however is that many firms are conglomorates and are thus difficult to compare
