Week 3 Flashcards
What does the annual report include?
State of financial position, income statement and statement of cash flows
In basic what is the statement of financial position?
Its a snapshot of the firm, it what the firm owns (assets), the firms debts (liabilities) and the difference between the two (equity)
In SOFP what does Assets = Liabilities + Shareholder equity show?
In statement of financial position, the assets show what the firm has invested in and both liabilities and shareholder equity show how the firm has financed
What does NWC stand for?
Net working capital
A companies current assets are low compared to its current liabilities, what does this mean?
The networking capital is low
What is the difference between current and non-current assets with an example?
A current asset is short term such as cash or inventory that moves, non-current asset is more long term such as a property of machinery
What is the balance sheet equation?
Assets = Liabilities + equity
What is the net working capital formula?
Net working capital = Current assets - current liabilities
What does a positive net working capital mean?
It means that there is enough cash to pay off liabilities
What is the difference between book value and market value?
Book value is what the company paid for an asset and taken account of depreciation such as £50k for Audi A6 8 years ago depreciated £20K book value £30k)
Market value is what the asset would be worth if they company was to sell it, this can be higher or lower, such as a limited edition rare Audi A6 going for £2 million or a normal going for £32k because thats what market will pay)
A company buys a machine for £100k and records depreciation of £20k for the machine. Market value is £90k Whats the book and market value?
Book value is £80k because £100k-£20k depreciation
Market value is the difference between both if you were to sell them
Market value £100k paid -£90K market sold for price = £10K Profit because the £80k from book and there’s £90k in market so over book, market value gives you a profit of £10k
Explain what an income statement is?
An income statement is a review of performance over a specific period of time
What is the income statement formula?
Net income = revenues - expenses
What is trend analysis and where in an annual report might you locate it?
Trend analysis is found under the income statement, it is a way to identify patterns throughout several years for example in sales.
Year 1: £45k
Year 2: £55k
Year 3: £53k
Year 4: £64k
What are the profitability ratios?
Profit margin
Return on assets (ROA)
Return on equity (ROE)
