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HR Accounting and Finance > Module 5 - Financial Analysis > Flashcards

Module 5 - Financial Analysis Flashcards

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1
Q

What are the 4 categories of Financial Measures/Ratios?

A
  • Liquidity Measures
  • Debt Ratios
  • Profitability Measures
  • Funds Management/ Turnover ratios
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2
Q

What 3 measures are categories as Liquidity Measures?

A
  • Working capital
  • Current Ratio
  • Quick Ratio
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3
Q

What 2 measures are categorized as Debt Ratios?

A

Debt-to-Equity Ratio

Long-Term Debt Ratio

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4
Q

What 7 measures are categorized as Profitability Measures?

A
  • Gross Margin
  • Gross Margin Ratio
  • Return on Sales
  • Earnings per Share
  • Return on assets
  • Return on equity
  • Return on total capital (employed capital)
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5
Q

What 2 measures are categorized as Funds management / Turnover ratios?

A

Inventory Turnover

The collection period

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6
Q

Which measure is an indicator of a companies ability to survive in the near future?

A

Working Capital

Current Assets - Current Liabilities

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7
Q

What ratio indicates the appropriate working capital?

A

Current Ratio

Current Assets / Current Liabilities

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8
Q

What ratio measure identifies assets that can be quickly turned into cash?

A

Quick Ratio

Cash + Marketable Securities + Receivables
/
Current Liabilities

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9
Q

Which measure determines the relative amount of debt to equity?

A

Debt to Equity Ratio

Total Liabilities / Total Shareholder Equity

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10
Q

Which measure is an indicator of a companies credit worthiness?

A

Long-Term Debt Ratio

Long-Term Debt / Long-term Debt + Shareholder equity

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11
Q

Which of the 5 major accounts (reports) are profitability measures associated with?

A

Income Statement

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12
Q

What is the calculation to determine Return on Assets or (ROI)

A

Net Income
/
Total Assets

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13
Q

What is Return on Equity used to determine?

How is it calculated?

A

Used to assess how a company is capitalized (dept vs equity)

Net Income
/
Total Shareholder Equity

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14
Q

what is Return on Total Capital used for?

A

Used to compare one company with others

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15
Q

How to calculate Inventory turnover

How to calculate number of days inventory stays in the company

A

Cost of Goods Sold / Average Inventory = Turnover

365 / Turnover = days in inventory

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16
Q

What does the “collection period” measure?

A

Average amount of time it takes to collect cash

The collection departments effectiveness

17
Q

Other Performance Measures - Define Return on Net Assets (RONA)

A

Similar to ROTC - but used at the division level measuring the return on the net assets being used in the division

18
Q

Other Performance Measures - Define Total Shareholder Return (TSR)

A

Return to shareholders over a period of time taking into account share price movement and dividends

May or may not include treasury stock

19
Q

Other Performance Measures - Define Economic Value Added (EVA)

A

Estimates economic profit of a firm - profit minus cost of capital

20
Q

Other Performance Measures - define Earnings Before Interest and Taxes (EBIT)

A

Also Called Operating Income - includes depreciation and amortization - used by equity based companies to drive incentive plans

21
Q

Other Performance Measures - define Earnings Before Interest, Taxes, Depreciation, Amortization (EBITDA)

A

Start up or highly leveraged companies might use this as a performance measurement when cash flow is the focus

Incentive to generate cash

22
Q 
Which of the following is a profitability measure
A. Gross Margin Ratio
B. Number of Days Sales in Receivable
C. Current Ratio
D. Long-Term Debt Ratio
A

A. Gross Margin Ratio

23
Q

What type of measure or ratio is calculated using the following equation?

Accounts Receivable x number of days in the period
/
Credit Sales

A. Profitability Measure
B. Liquidity Measure
C. Debt Ratio
D. Funds Management Ratio

A

D. Funds Management Ratio

24
Q

Which of the following financial ratios should be used to determine a companies ability to pay obligations in the near future?
A. Current Assets/Current Liabilities
B. Long-Term Debt / Long-term Debt + Shareholder Equity
C. Net Income/ Total Assets
D. Total Liabilities/ Total Assets

A

A. Current Assets/ Current Liabilities

25
Q

Which performance measure would most likely be used by a start up company where cash is the focus and there is an incentive to generate cash?

A. TSR Total Shareholder Return
B. EBIT Earnings Before Interest and Taxes
C. EBITDA Earnings Before Interest Taxes Depreciation and Amortization
D. Economic Value Added (EVA)

A

C. EBITDA

HR Accounting and Finance (7 decks)

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