Investment Analysis Flashcards
What accounting standards must firms on EU and UK stock exchanges use?
EU - IFRS
UK - UK GAAP
What three parts make up a company’s accounts?
Statement of financial position (balance sheet)
Income statement (profit/loss)
Cash flow statement
What are the three methods for inventory management?
- First in first out
- Last in first out
- Weighted average cost
What are the two methods for calculating depreciation?
- Straight line method
- Reducing balance method
What is capital employed?
Total assets less current liabilities
What is working capital?
Current assets less current liabilities
True or false? Net assets should equal shareholder funds.
True
When would a company be classed as an associate company?
The parent owns between 20-50% of the voting rights
Name the four main areas of company analysis.
-Profitability
-Volatility
-Liquidity
-Operational efficiency
Net profit after tax is £300k. Net profit before tax is £400k. Total equity is £4.8m. What is the return on equity?
300,000/4,800,000 = 6.25%
Total assets are £55m. Current liabilities are £30m. Profit before interest & taxation is £400k. What is the return on capital employed?
Capital employed = 55m - 30m = £25m
Return on capital employed = 400,000 / 25,000,000 = 1.6%
Long term loans are £45m. Total preference shares are £60m. Total equity is £120m. What is the gearing ratio?
(45+60) / (120-60) = 105 / 60 = 1.75
Profit before interest & tax is £36m. Gross interest payable is £15m. What is the interest cover ratio?
36 / 15 = 2.4
Current assets are £24m. Current liabilities are £15m. What is the current/working capital ratio?
24/15 = 1.6
Current assets are £28m. Current liabilities are £16m. Total stock is £2m. What is the liquidity ratio?
(28-2) / 16 = 1.625
