Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

ACCT 1011 > Week 6 > Flashcards

Week 6 Flashcards

1
Q

What is the analysis of financial statements?

A

The identification, separation and other manipulation of elements of information in financial statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the interpretation of financial statements?

A

The translation of analysis information into a form useful for decision making.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the goals of interpretation?

A
  1. Profitability
  2. Liquidity
  3. Solvency - Financial Stability
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Interpretation: What is Profitability?

A
  • to evaluate the entity’s performance for the period

* to evaluate future prospects for survival

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Interpretation: What is Liquidity?

A

• to evaluate the entity’s ability to meet its short term liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Interpretation: What is Solvency - Financial Stability?

A

• to evaluate the entity’s ability to continue operations in the long term

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the Profitability Ratios?

A
  1. Return on Assets
  2. Return on Ordinary Shareholders’ Equity
  3. Profit Margin
  4. Gross Profit Margin
  5. Expense Ratio
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Return on Assets: What is the ratio’s significance?

A

Measures RATE or RETURN earned through operating total ASSETS provided by both creditors and owners.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Return on Ordinary Shareholders’ Equity: What is the ratio’s significance?

A

Measures RATE or RETURN earned on ASSETS PROVIDED BY OWNERS.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Profit Margin: What is the ratio’s significance?

A

Measures PROFITABILITY of each $ of SALES

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Gross Profit Margin: What is the ratio’s significance?

A

Measures GROSS PROFITABILITY of each $ of SALES

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Expense Ratio: What is the ratio’s significance?

A

Attempts to measure the PROPORTION of a specific EXPENSE type as a proportion OF SALES.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Return on Assets: What is the formula?

A

(Profit from Ordinary Activities BEFORE Income Tax + Borrowing Costs) / Average Total Assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Return on Ordinary Shareholders’ Equity: What is the formula?

A

(Profit - Preference Shares) / Average Ordinary Equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Profit Margin: What is the formula?

A

Profit from Ordinary Activities AFTER Income Tax / Income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Gross Profit Margin: What is the formula?

A

Gross Proft / Sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Expense Ratio: What is the formula?

A

Selling Expense / Income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are the Liquidity Ratios?

A
  1. Current Ratio
  2. Quick Ratio
  3. Receivables Turnover
  4. Ageing Collection Period
  5. Inventory Turnover
  6. Average Days to Sell
  7. Operating Cycle
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Current Ratio: What is the ratio’s significance?

A

A measure of short-term liquidity.

Indicates the ABILITY of an entity to meet its SHORT-TERM DEBTS from its CURRENT ASSETS.

20
Q

Quick Ratio: What is the ratio’s significance?

A

A more rigorous measure of short-term liquidity.

Indicates the ABILITY of the entity to meet UNEXPECTED DEMANDS demands from LIQUID CURRENT ASSETS.

21
Q

Receivables Turnover: What is the ratio’s significance?

A

Measures the effectiveness of collections.

Used to evaluate whether receivables balance is Excessive.

22
Q

Ageing Collection Period: What is the ratio’s significance?

A

Measures the AVERAGE number of DAYS taken by an entity to COLLECT its receivables.

23
Q

Inventory Turnover: What is the ratio’s significance?

A

Indicates the liquidity of inventory.

Measures the number of TIMES INVENTORY was SOLD on the average during the period

24
Q

Average Days to Sell: What is the ratio’s significance?

A

Measures the AVERAGE number of DAYS taken by an entity to SELLits inventory.

25
Q

Operating Cycle: What is the ratio’s significance?

A

A measure of the TOTAL average TIME it takes FROM the RECIEPT of INVENTORY TO the point at which the CUSTOMER PAYS.

It is a measure of the overall efficiency of a retail firm’s core operations.

26
Q

Current Ratio: What is the formula?

A

Current Assets / Current Liabilities

27
Q

Quick Ratio: What is the formula?

A

(Cash Assets + Receivables) / Current Liabilities

28
Q

Receivables Turnover: What is the formula?

A

Net Credit Sales Income / Average Receivables Balance

29
Q

Ageing Collection Period: What is the formula?

A

365 / Receivables Turnover

365 / (Net Credit Sales Income / Average Receivables Balance)

30
Q

Inventory Turnover: What is the formula?

A

Cost of Sales / Average Inventory Balance

31
Q

Average Days to Sell: What is the formula?

A

365 / Inventory Turnover

365 / (Cost of Sales / Average Inventory Balance)

32
Q

Operating Cycle: What is the formula?

A

Ageing Collection Period + Average Days to Sell

33
Q

What are the Solvency - Financial Stability Ratios?

A
  1. Debt Ratio
  2. Equity Ratio
  3. Capitalisation Ratio
  4. Times Interest Earned
  5. Asset Turnover Ratio
34
Q

Debt Ratio: What is the ratio’s significance?

A

Measures % ASSETS PROVIDED BY CREDITORS and extent of using gearing.

35
Q

Equity Ratio: What is the ratio’s significance?

A

Measures % ASSETS PROVIDED BY SHAREHOLDERS and the extent of using gearing.

36
Q

Capitalisation Ratio: What is the ratio’s significance?

A

The reciprocal of the equity ratio and thus measures the same thing.

i.e. Measures % ASSETS PROVIDED BY SHAREHOLDERS and the extent of using gearing.

37
Q

Times Interest Earned: What is the ratio’s significance?

A

Measures the ABILITY of the entity to MEET its INTEREST payments on borrowings out of current profits.

38
Q

Asset Turnover Ratio: What is the ratio’s significance?

A

Measures the EFFECTIVENESS of an entity in USING its ASSETS during the period.

39
Q

Debt Ratio: What is the formula?

A

Total Liabilities / Total Assets

40
Q

Equity Ratio: What is the formula?

A

Total Equity / Total Assets

41
Q

Capitalisation Ratio: What is the formula?

A

Total Assets / Total Equity

42
Q

Times Interest Earned: What is the formula?

A

(Profit from Ordinary Activities BEFORE Income Tax + Borrowing Costs) / Borrowing Costs

43
Q

Asset Turnover Ratio: What is the formula?

A

Income / Average Total Assets

44
Q

What is the purpose of Ratio Analysis?

A

– identifies relationships among data
– reduces data to an understandable basis
– used to forecast performance

45
Q

What is Ratio Analysis?

A 
A calculative analysis performed 
upon financial statement data 
which shows structural 
relationships between items in 
the reports
46
Q

What are the 3 steps of Financial Analysis?

A
  1. Describe
  2. Explain
  3. Interpret

ACCT 1011 (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions