Lesson 12: Financial analysis I

Question 1

What is the purpose of Financial Reporting?

Answer 1

The objective of Financial Reporting is to provide information for decision making through its financial statements and other disclosures.

Question 2

What are the types of Financial Analysis methods?

Answer 2

a) Horizontal analysis
b) Vertical analysis
c) Ratio analysis

Question 3

What is Horizontal Analysis?

Answer 3

Horizontal analysis refers to examination of financial statement data across time.

Question 4

What is Vertical Analysis?

Answer 4

This is the comparison of a company’s financial condition and performance to a base amount.

Question 5

What are the 5 categories of financial ratios?

Answer 5

-Profitability
-Efficiency
-Liquidity
-Solvency
-Investment

Question 6

What are the factors to consider in evaluating the adequacy of current and quick ratio?

Answer 6

-Type of Business
-Composition of Current assets
-Turnover rate of assets

Question 7

What are the factors to consider in working capital management?

Answer 7

a) Investments in current assets
b) Investment in Inventory
c) Investment in Receivables
d) Cash and Bank balances
e) Uses of Short term finance
f) Meeting other financial commitments