Industry Analysis (Section C) Flashcards

1
Q

Which businesses have high assets?

A

Manufacturing businesses, service businesses have low assets

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2
Q

Do manufacturing businesses have high depreciation?

A

Yes

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3
Q

Which businesses have high inventory?

A

Manufacturing businesses, service business have less inventory

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4
Q

Which businesses have a high cost of sales?

A

Manufacturing

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5
Q

Comparison of entites in two periods?

A

Change in product mix, receivables and payables
Acquisition of major new PPE
DIsposal of PPE

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6
Q

Change in product mix cause?

A

New competitors entering the market or because of changes in societal demands

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7
Q

Change in receivables?

A

New customers are gained or existing customers must be offered extended redit terms

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8
Q

Change in suppliers?

A

New suppliers are being used to fulfil changes in product mix

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9
Q

Acquisition of new PPE affects?

A

Asset turnover
Operating profit margin (because of depreciation)
ROCE

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10
Q

When is the financing of new asset important?

A

If cash, this affects cash flows
Affects interest cover if acquired through lease or a loan

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11
Q

What does gain or disposal in asset result in?

A

A gain or loss on disposal which has impact on operating profit margin
Asset turnover
ROCE

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12
Q

One off events when comparing one entity over same period?

A

An impairment loss which increased expenses and therefore reduced operating profit margin

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13
Q

When comparing two entites in the same period?

A

Whether there are any differences in accounting policies

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14
Q

What is a key reason for return on assets or return on equity differences?

A

Accounting for non-current assets at cost vs fair value

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15
Q

Comparison of entity with sector averages?

A

Firms may have different year-ends which could skew the comparison

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16
Q

Seasonal trade and the affect on sector averages?

A

Receivables and inventories balances at year end

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17
Q

What must discussion focus on in consolidation?

A

The acquisition exclusively

18
Q

Acquisition discussion points (margins)

A

Acquired subsidiary might have different margins or operate at a different sector

19
Q

Acquisition discussion points (intra-group)

A

Some transactions such as intra-group sales or unrealised profit must be eliminated

20
Q

Acquisition discussion points (fees)

A

One-off fees related to the acquisition

21
Q

Acquisition discussion points (subsidiary acquired)

A

The subsidiary acquired may have different payment terms for receivables and payables

22
Q

Acquisition discussion points (gearing ratio)

A

Shares issued to acquire subsidiary may impact the gearing ratio

23
Q

Acquisition at start of year?

A

There is consistency between CSPLOCI and CSFP

24
Q

Acquisition at mid year?

A

False impression of receivables collection period

Since CSPLOCI includes results post-acq and CSFP includes all assets and liabilities

25
Q

Acquisition at end of year?

A

Skews ratio which increase in assets and liabilities

Increase in assets and liabilities but not the profits

26
Q

Mid-year disposal in consolidation?

A

CSPLOCI contains results of subsidiary up until date of disposal whereas CSFP not contain any assets or liabilities of subsidiary since it has been disposed

27
Q

How to analyse statement of cash flows?

A

Look at operating activities, investing activities and financing activities

28
Q

Cash flow from operaitons source?

A

How much cash the business can generate from its core activities

29
Q

If a company offers 60 days instead of 30 days credit terms (cash flows)?

A

Cash sales will decrease as the company is collecting less cash

30
Q

Cash flows from investing source?

A

Are one-off items

31
Q

A reason for the entity increasing investing activities but performing bad?

A

Forced to sell assets and rent then back to generate cash flows to allow to continue to trade

32
Q

Cash flows from financing source?

A

Are one-off items

33
Q

An example for financing activities?

A

A new loan increases cash, great if proceeds are used to invest in new assets, negative if proceeds are needed for company to continue trading

34
Q

Potential interest of shareholders?

A

Performance of management during the year
Decision to buy, hold or sell shares

35
Q

Potential interest of investors?

A

Future growth and profit potential
Investment decision

36
Q

Potential interest of banks and capital providers?

A

Ability to pay existing interest and loan capital

Decision whether to grant further loans

37
Q

Potential interest of employees?

A

Company stability as an employer

Wage negotiation

38
Q

Potential interest of management?

A

Weak performing areas that need attention

Whether targets met

39
Q

Potential interest of suppliers?

A

Creditworthiness as a customer

40
Q

Potential interest of government?

A

Statistics
Decision whether to award a grant