Topic 3- Analysing the Profit and Loss statement Flashcards
1
Q
What are the factors that affect the earnings quality
A
accounting policies and estimates (inventory valuation, depreciation, provision for impairment of receivables) discretionary expenses income shifting exceptional item cyclical and economic forces
2
Q
What is earnings power affected by?
A
nature of business (income trend)
quality of management
3
Q
What does a company with high earnings power have?
A
research and development independent supply and dist chain no raw material shortage low occurrence of strikes keeping up with technology change in product mix
4
Q
What should the analysis of income distinguish
A
normal stable continuing elements
random, erratic, unusual or non-recurring elements
5
Q
What are the key areas relating to profit and loss statement analysis?
A
revenue /sales COGS Operating expenses depreciation maintenance and repairs interest expense
6
Q
What do you analyse in the sales portion of P&L?
A
major sources of sales
stability and trend of sales
methods of revenue recognition and measurement
7
Q
What factors affect stability and trend of sales?
A
nature of products/services quality of management degree of diversification degree of concentration degree of dependence on star salesmen
