Ratio Analysis 1 Flashcards
What are the three main types of financial statements?
Income statement, statement of financial position, cash flow statement
Who are the primary users of financial statements?
Shareholders, potential shareholders, trade suppliers, other payables, banks, trade customers, employees, competitors, tax authorities, government departments, regulatory bodies, investment analysts, other vested interests
What do shareholders primarily seek from financial statements?
Returns on investment (dividends), profit trends, potential future profits
What is the main interest of trade suppliers in financial statements?
Liquidity of the company, ability to pay invoices, financial stability
Fill in the blank: Stakeholders assess financial statements based on their specific _______.
[interests]
Why are financial ratios important?
They are critical tools for comparing like with like, especially within the same industry
What does benchmarking in financial analysis involve?
Comparing financial ratios against benchmarks such as past periods, similar businesses, and budgets
True or False: Financial ratios are meaningful only when analyzed in isolation.
False
What challenges may arise when benchmarking against past periods?
Changes in trading conditions, inflation, and accounting policies may complicate comparisons
What is a key takeaway regarding financial ratios?
Ratios simplify financial data to allow meaningful comparisons
What should be considered when comparing financial performance across different businesses?
Differences in business models, accounting practices, and external conditions
What specific interests do tax authorities have in financial statements?
Tax liability, accounting policies, and expense claims
Fill in the blank: Employees are concerned with _______ and provisions for redundancy.
[job security]
What do investment analysts look for in financial statements?
Share price predictions, profitability trends, and performance recommendations for investors
Who might be considered ‘other vested interests’ in financial statements?
Media, political groups
