Lecture 4 consolidation of financial statements part 2

Question 1

P/E ratio (price to earnings ratio) calculation

Answer 1

Market price of a share/ EPS.

Question 2

Earnings per share (EPS)

Answer 2

the net income/ number of shares

Question 3

Book value per share

Answer 3

(price paid per share - book value per share) x number of shares bought

Question 4

Market price of a share

Answer 4

P/E (price to earnings) ratio x EPS (earnings per share)

Question 5

Acquisition

Answer 5

is used to describe an activity in which one party gains control over another

Question 6

Goodwill

Answer 6

The difference between book value and the take-over price

Question 7

Consolidation

Answer 7

A technique to join the financial statements of the entities making up the group

Question 8

Financial assets (at book value) on balance sheet

Answer 8

Shows that a company has interest in one or more other companies

Question 9

Calculation consolidated balance sheet

Answer 9

We basically add up the assets and debts of both companies

Question 10

Consolidated balance sheet

Answer 10

The financial asset (book value) not shown it is replaced by the actual assets and liabilities.
Goodwill is still shown
Equity is the same as the parent company (so not the sum of both the equity’s)

Question 11

Consolidated income statement

Answer 11

The revenue/ costs of the companies will be added up.