Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Accounting > Lecture 4 and 5 Financial Analysis > Flashcards

Lecture 4 and 5 Financial Analysis Flashcards

1
Q

How can Ratios be interpreted?

A
  • Trend over time
  • Benchmarking to industry, competitors etc.
  • Comparison to target or expectation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How do you Calculate ROI?

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How to calculate Operating Margin?

A

Operating Margin =

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How to calculate Return on Capital Employed?

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How do you calucalte Gross Profit Margin?

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How do you calcualte OH/Sales Ratio? …. Guess :)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How do you calcuate Sales Growth Ratio?

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How do you calculate Working Capital Ratio?

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How do you Calcualte the Acit Test Ratio?

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How do you calculate Gearing Ratio?

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How do you calculate Interest Cover Ratio?

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How do you Calcualte Asset Turnover?

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the two key areas of any analysis? and why?

A
  • Gearing
  • Working Capital
        Why?
  • Risk
  • Return • Cash
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Explain the effect of different debt/equity compositions on Risk and Return:

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Explain the Working Capital Cycle:

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How can the Working Capital Cycle be managed?

A

Managing receivables through effective credit approval, invoicing and collection activity;

Managing inventory through effective ordering, storage and identification of stock;

Managing payables by negotiation of trade terms and through taking advantage of settlement discounts; and

Managing cash by effective forecasting, short-term borrowing and/or investment of surplus cash where possible.

17
Q

How do you calculate days of sales outstanding?

A
18
Q

How do you caluculate Stock Turn?

A
19
Q

How do you manage payables and calculate days of Payables outstanding?

A
20
Q

What are the effects on Ratios of changes in the Working Capital Cycle?

A
21
Q

How do you calcualte the Dividend Payout Ratio?

A
22
Q

How do you calculate Dividends per Share?

A
23
Q

How do you calculate Dividends Yield?

A
24
Q

How to Calcualte EPS

A
25
Q

How to Calculate PE Ratio?

A
26
Q

Something to Ponder over:

A
27
Q

What are ideal Ratio results?

A

Increasing rates of profit on shareholders’ funds, capital employed and sales, and sales growth;

Adequate liquidity (a ratio of current assets to liabilities of not less than 100%) to ensure that debts can be paid as they fall due, but not an excessive rate to suggest that funds are inefficiently used;

Level of debt commensurate with the business risk taken;

High efficiency as a result of maximizing sales from the

business’s investments in assets (non-current & current);

A satisfactory return on the investment made by

shareholders.

28
Q

How to interpret Profitability Ratio?

A

Profitability

Increased profits (more sales, higher margins, lower costs) or lower capital

Higher profit (in £s) is not the same as a higher rate of profit (the % to sales)

Improved rate of gross profit may be the result of higher selling prices, lower cost of sales or changes in product mix (or any combination of these)

29
Q

How to Interpret Liquidity?

A

Liquidity

• Improvements are the result of changing the balance between current assets and current liabilities

  • May be improved by long-term borrowing
  • Repaying long-term debt will reduce liquidity
30
Q

How to interpret Gearing:

A

Gearing

  • Affected by more shares being issued, new borrowings or repayment of debt
  • Higher profits will improve interest cover
  • Activity/efficiency
  • Improved due to increase in sales or reduction in assets. Efficient collection of debtors and management of inventory.
31
Q

How to interpret Shareholder Returns:

A

Shareholder returns

Paying higher dividends may lead to borrowings for capital investment, but lower dividends are not favoured by investors

Share price is a result of market expectations about the company’s future

An increase in the number of shares will also affect these ratios.

32
Q

What are some of the Limitations of Ratio Analysis?

A

Limitations of Ratio Analysis

  • Financial Statements
  • contain estimates involving subjectivity and there is

discretion in how accounting principles and standards

are applied
• are backwards looking, showing historical costs without

recognising inflation

The ratios should be interpreted along with

economic, industry and competitive conditions,

and the company’s unique situation

Ratios can only be interpreted based on trends,

benchmarks and targets

33
Q

Explain the Alternative Theoretical Perspective on Financial Statements

A
  • Intellectual capital
  • ‘the hidden dynamic factors

that underlie the visible company’
• Edvinsson & Malone

human (developing and leveraging individual knowledge and skills);

organizational (internal structures, systems and procedures); and

customer (loyalty, brand, image, etc.).

  • Institutional theory
  • ‘Organizations compete not

just for resources and customers, but for political power and institutional legitimacy, for social as well as economic fitness’

  • DiMaggio & Powell • Legitimation
  • Isomorphism
34
Q
A

Accounting (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions