Section 2: Financial and Managerial Analysis Techniques Flashcards
Financial & Managerial Analysis Techniques
- Time value of money
- Payback Analysis
- Flowcharting
- Earned Value Management
- Regression Analysis
- Forensic Auditing
- Data Analytics
- Competitive Sourcing Analysis
- Ratio Analysis
3 broad purposes for spending money
- Current Operations
- Capital Outlays
- Debt Service
What is Time Value of Money
Comparing the value of money at different points in time.
2 types of time value analysis
- Present Value Analysis
- Future Value Analysis
Present Value Formula
F / (1+r)n
- P is the principal that can be invested today
- F is the future value the investment will return.
- r is the interest rate. Sometimes called discount or opportunity rate.
- n is the number of years until the benefit is received.
Future Value Formula
F = P(1+r)n
- F is the future value the investment will return
- P is the principal that is to be invested today
- r is the interest rate
- n is the numbers of years until the benefit is received
Other Factors To Consider For Investing
- Availability of funding
- Impact of rules and regulations
- Likelihood of changing technology
- Capacity to provide the goods or service
- Projected operating costs
Payback Analysis
Determines how long it will take to recover the amount invested in a new capital asset. Simpler than time value analysis.
Flowcharting
Technique used to obtain or convey an understanding of a process. Used in Business Process Reengineering.
What does a CIRCLE represent on a flowchart?
Start of a process
What does a RECTANGLE represent on a flowchart?
Step in a process
What does a DIAMOND represent on a flowchart?
Decision in a process
What does a DOCUMENT shape represent on a flowchart?
A report
What is Earned Value Management
A technique for managing large projects. It quantifies progress on the project by considering the funds expended, the time expended, and the status of deliverables.
Regression Analysis
An analysis technique that explores, develops an understanding for, and predicts the relationships among variables.
Types of Regression
- Direct Linear
- Inverse Linear
Correlation Coefficient
Predicts the degree of accuracy with which the regression can be used to predict results.
A statistical measure, between -1 and +1 that calculates the strength of the relationship between the relative movements of the two variables.
1 is perfect but rare. -.85 is the threshold for an acceptable direct relationship that is sufficiently reliable for forecasting.
Fraud Reduction and Data Analytics Act of 2015
Enacted to improve Federal agency financial and administrative controls and procedures to assess and mitigate fraud risks, and to improve Federal agencies’ development and use of data analytics for the purpose of identifying, preventing, and responding to fraud, including improper payments.
Requires OMB to establish guidelines for agencies to use GAO’s A Framework for Managing Fraud Risks in Federal Programs
Requires agencies to use a risk-based approach to design and implement controls to mitigate identified fraud risks.
What is Data Analytics
Process of inspecting, cleaning, transforming, and modelling data with the goal of discovering useful information, suggesting conclusions, and supporting decision making.
Data Mining
A data analysis technique that focused on modeling and knowledge-discovery for predictive, rather than descriptive, purposes.
Predictive Analytics
A variety of techniques from statistics, modeling, machine learning and data mining that analyze current and historical facts to make predictions about future, or otherwise unknown, events.
Strengths of Data Analytics
- Analyst is able to review complete data sets.
- The ability to link together multiple data sets.
Forensic Auditing
An examination of an organization or individual’s financial information and other economic affairs, in which evidence is collected, that is likely to be used for the identification, investigation and prosecution of financial crimes, such as theft or fraud and/or the determination of negligence.
Steps in Forensic Analytics
- Data Collection
- Data Preparation
- Data Analysis
- Reporting
Benford Digital Analysis
A forensic analytic technique predicated on the observation that more transactions begin with the number one than larger numbers.
Competitive Sourcing Analysis
- Conduct a management study
- Prepare a performance work statement
- Project the in-house and contract costs
- Select the best alternative
Types of Ratios
- Pure Ratios
- Comparative Analysis
- Time-Series Analysis
- Common Size Statements
- Per Capita Information
2 Types of Liquidity Ratios
- Current Ratio
- Quick Ratio
Liquidity Ratios
Used to determine an entity’s abilities to meet its creditor’s demands.
Current Ratio
An entity’s current assets divided by its current liabilities.
Quick Ratio
Compares cash and cash equivalents to current liabilities.
Receivables Ratios
- Percent of taxes collected
- Days receivables outstanding
Percent of taxes collected
Measures: Performance collecting receivables
Days Receivables Outstanding
Measures: Efficiency with which an organization collects its receivables.
Average Receivables
Beginning of the Year Receivables, plus the end of year receivables, divided by two.
