Industry Analysis (Section C) Flashcards
Which businesses have high assets?
Manufacturing businesses, service businesses have low assets
Do manufacturing businesses have high depreciation?
Yes
Which businesses have high inventory?
Manufacturing businesses, service business have less inventory
Which businesses have a high cost of sales?
Manufacturing
Comparison of entites in two periods?
Change in product mix, receivables and payables
Acquisition of major new PPE
DIsposal of PPE
Change in product mix cause?
New competitors entering the market or because of changes in societal demands
Change in receivables?
New customers are gained or existing customers must be offered extended redit terms
Change in suppliers?
New suppliers are being used to fulfil changes in product mix
Acquisition of new PPE affects?
Asset turnover
Operating profit margin (because of depreciation)
ROCE
When is the financing of new asset important?
If cash, this affects cash flows
Affects interest cover if acquired through lease or a loan
What does gain or disposal in asset result in?
A gain or loss on disposal which has impact on operating profit margin
Asset turnover
ROCE
One off events when comparing one entity over same period?
An impairment loss which increased expenses and therefore reduced operating profit margin
When comparing two entites in the same period?
Whether there are any differences in accounting policies
What is a key reason for return on assets or return on equity differences?
Accounting for non-current assets at cost vs fair value
Comparison of entity with sector averages?
Firms may have different year-ends which could skew the comparison
Seasonal trade and the affect on sector averages?
Receivables and inventories balances at year end