# Topic Overview BAFS Elective Part - Accounting Module Financial Accounting A04: Financial Analysis S5 / S6 2 lessons (40 minutes per lesson)

Save this PDF as:

Size: px
Start display at page:

Download "Topic Overview BAFS Elective Part - Accounting Module Financial Accounting A04: Financial Analysis S5 / S6 2 lessons (40 minutes per lesson)"

## Transcription

1 : Topic Overview P.1 Topic Level Duration Topic Overview - Accounting Module Financial Accounting A04: S5 / S6 2 lessons (40 minutes per lesson) Learning Objectives: 1. To understand the major types of accounting ratios; 2. To calculate different accounting ratios; 3. To evaluate financial performance through accounting ratios; 4. To improve the financial performance; and 5. To describe the limitations on using accounting ratios. Overview of Contents: Lesson 1 Lesson 2 Major Types of Accounting Ratios and Their Calculations Evaluation of Financial Performance through Accounting Ratios Prior Knowledge: Students should have basic understanding on the Income Statement and the Balance Sheet. Resources: Topic Overview and Teaching Plan PowerPoint Presentation Student Worksheet Suggested Activities: Case Study Matching Game Problem Solving BAFS As at April 2009

2 : Topic Overview P.2 Theme Duration Lesson 1 Major Types of Accounting Ratios and Their Calculations 40 minutes Expected Learning Outcomes: Upon completion of this lesson, students will be able to: 1. Have basic understanding of the major types of accounting ratios; and 2. Understand how to calculate different accounting ratios. Teaching Sequence and Time Allocation: Activities Part I: Introduction Brief revision of the 8 accounting ratios, including Profitability Ratios (Gross Profit Ratio & Net Profit Ratio) Liquidity Ratios (Current Ratio & Quick Ratio) Management Efficiency Ratios (Stock Turnover Rate, Credit Period Allowed to Debtors, Credit Period Received from Creditors & Return on Capital Employed) Part II: Content Activity 1: Matching Matching game of 8 accounting ratios with formulas will be assigned for revision and as a warm-up for the following activities. Reference PPT #1-5 PPT #6-7 Student Worksheet p.1 Time Allocation 10 minutes 5 minutes Activity 2: Problem Solving Students will be provided with the financial statements of two companies of a similar scale and industry. They will calculate the eight accounting ratios mentioned in Part I of the two companies. Students fill in the two columns of Company A and B with calculations of the 8 accounting ratios for the preparation of Activity 3 and 4 in Lesson 2. Financial statements of the two companies will be provided. PPT #8-9 Student Worksheet pp minutes BAFS As at April 2009

3 : Topic Overview P.3 Activity 3: Case Study Students will conduct a comparison between their own company and its competitors with accounting ratios provided, and will state whether their company is performing better or not according to data provided. The answer slides have animations and chops of WIN/LOSE/DRAW in order to indicate the performance of their company with different ratios compared with competitors. At activity end, teachers suggest and explain which company is doing better in various aspects. Part III: Conclusion Teacher concludes lesson by highlighting the classification of accounting ratios. Students are required to consider the usefulness of accounting ratios and its limitations at home. PPT #10-17 Student Worksheet p.4 12 minutes PPT # minutes BAFS As at April 2009

4 : Topic Overview P.4 Theme Duration Lesson 2 Evaluation of Financial Performance through Accounting Ratios 40 minutes Expected Learning Outcomes: Upon completion of this lesson, students will be able to: 1. Evaluate the financial performance using accounting ratios; 2. Find out how to improve financial performance; and 3. Describe the benefits and limitations using accounting ratios. Teaching Sequence and Time Allocations: Activities Time Reference Allocation Part I - Introduction Teacher begins lesson by asking students their opinions on the usefulness of accounting ratios and limitations of ratios analysis. 3 minutes Teacher asks students to apply calculated ratios in Activity 2 to interpret performance of companies compared to industry average and competitors. Part II Content Activity 4: Group Discussion and Presentation Students are divided into 6 groups to discuss the PPT # minutes level of performance of North Ltd and South Ltd to compare Industry averages (given) and offer improvement suggestions. Students present their own views and listen to Student Worksheet pp.5-8 feedback from other groups. 8 minutes will be given to students to discuss among themselves and formulate their arguments. Each group will nominate one representative to present their ideas. Each representative will have 2 minutes (maximum) to present their performance and improvement methods. Activity 5: Debate Teacher asks students to conduct a debate on the topic of Ratios analysis is the best method to evaluate financial performance! Students are divided into 2 groups. One group PPT #25-27 Student Worksheet 18 minutes BAFS As at April 2009

5 : Topic Overview P.5 assumes the affirmative (benefits of ratios analysis) side and the other as the negative (limitations of ratios analysis) side. 8 minutes will be given to students to discuss among themselves and formulate their arguments. Each group will nominate two representatives to debate. Each representative has 1 minute to present their views and arguments. After all 4 representatives have presented, each group will have a representative to give a 1.5- minute concluding remark. Part III - Conclusion Teacher concludes lesson by highlighting key points to students. pp.9-10 PPT # minutes BAFS As at April 2009

6 Accounting Module - Financial Accounting Accounting Ratios : Profitability Ratios Liquidity Ratios Management Efficiency Ratio Technology Education Section Curriculum Development Institute Education Bureau, HKSARG April Introduction This session aims to help students understand major types of accounting ratios, calculate different accounting ratios and evaluate financial performance through these accounting ratios. Students will finally suggest ways to improve company s financial performance. Knowing the limitations when using accounting ratios is also a must. Prior knowledge Students should have basic understanding on the income statement and the balance sheet. Duration Two 40-minute lessons Lesson 1 Teacher starts the lesson by briefing students the 8 accounting ratios. Users of financial statements evaluate the financial position, financial performance and creditworthiness by analysing and interpreting the financial statements with ratios. Generally, accounting ratios are grouped into the following categories: a.profitability ratios b.liquidity ratios c.management efficiency ratios Contents Lesson 1 Major Types of Accounting Ratios and Their Calculations Lesson 2 Evaluation of Financial Performance through Accounting Ratios 1 2

7 Profitability Ratios Liquidity Ratios Gross Profit Ratio Net Profit Ratio Current Ratio Liquid Ratio (Quick Ratio / Acid Test Ratio) Gross Profit Sales X 100% Net Profit Sales X 100% Current Assets Current Liabilities X 100% Current Assets - Inventory Current Liabilities X 100% 3 4 Profitability ratios measure a company s overall financial performance in terms of profits and return on investment. Liquidity ratios measure a company s relative liquidity --- a firm s ability to pay its current debts. Investors would not be interested to invest in a company with poor earnings potential since the market share price and dividend potential will be adversely affected. Creditors will avoid companies with deficient profitability since the amounts owed to them may not be paid. The major ratios that measure profitability are Gross Profit Ratio and Net Profit Ratio. Liquidity is essential to maintaining business activities. It is particularly important in times of adversity such as when the business is shut down by a strike. The company would be required to satisfy current liabilities before current assets could be realised. In times of recession, operating losses may ensue. If liquidity is insufficient to cover such losses, the company may be forced to wind up. The major ratios that measure liquidity are Current Ratio and Liquid Ratio. 3 4

8 Management Efficiency Ratios Credit Period Allowed to Debtors Credit Period Received from Creditors Activity 1: Matching (Refer to Student Worksheet P.1) Stock Turnover Rate Average Accounts Receivable X 365 days Sales Average Accounts Payable X 365 days Purchases Return on Capital Employed Cost of goods sold Average Stock Profit before interest and tax Owners equity + preference shares + long term liabilities X 100% 5 6 Management efficiency ratios measure management s efficiency in employing assets to generate income. A matching game of the 8 accounting ratios with its formulas will be assigned for revision and as a warm-up for the following activities. The major ratios that measure management efficiency are 1.Stock Turnover Rate 2.Credit Period Allowed to Debtors 3.Credit Period Received from Creditors 4.Return on Capital Employed (there are several equations to measure ROCE e.g. Profit before interest/owners equity or Profit after interest and tax/owners equity ) 5 6

9 Activity 1: Matching ANSWER Match the following ratios with the correct formulas: Current Asset Gross Profit Ratio Net Profit Ratio Current Ratio Liquid Ratio Stock Turnover Rate Current Liabilities Profit before interest & tax Equity, Preference shares & LT Liabilities Net Profit X 100% Sales Average Accounts Receivable Sales Gross Profit X 100% Sales X 100% X 365 days Activity 2: Problem Solving Refer to Student Worksheet P.2-3 Calculation of the accounting ratios Debtors collection period Cost of goods sold Average Stock Creditors repayment period Current Assets - Inventory Current Liabilities Return on capital employed 7 Average Accounts Payable X 365 Purchase days 8 Students will match ratios with the related formulas to strengthen their understanding of each ratio. Students read the financial statements on Student Worksheet P.2 ---then calculate the ratios on P.3. Before calculation, students should beware about the formula of each ratio to ensure correctness of the calculation. Students calculate the accounting ratios in this Activity with the data to be used in upcoming activities. 7 8

10 Activity 2: Suggested ANSWER Calculate the following ratios of two companies: Profitability Ratios North Ltd South Ltd Gross Profit Ratio 65% 57.4% Net Profit Ratio 8.6% 14.6% Liquidity Current Ratio 6.0:1 2.7:1 Quick Ratio 4.8:1 2.2:1 Management Efficiency Stock Turnover Rate 4.0 times 4.5 times Credit Period Allowed to Debtors 113 days 73 days Credit Period Received from Creditors 79 days 169 days Topic Return A04 on Capital Employed 9 10% BAFS 6.7% Elective Part Activity 3: Case Study You are the financial manager of ME Video Game Company Limited. Your staff has calculated accounting ratios of the company and its competitor, PlayGame Company Limited. Based on her workings, please advise your boss which one is better by putting a chop (WIN/LOSE/DRAW) next to that ratio. 10 Students will calculate the accounting ratios and present their answers. Teacher introduces the case to students and ask them to complete the answers to discuss. Formulas: Gross profit ratio: 1677/2580 (North) / 1148/2000 (South) Net profit ratio: 223/2580 (North) / 292/2000 (South) Current ratio: 1250/207 (North) / 950/358 (South) Quick ratio: ( )/207 (North) / ( )/358 (South) Stock turnover ratio: 903/[( )/2] (North) / 852/[( )/2] (South) Credit period allowed to debtors: 800/2580*365days (North) / 400/2000*365days (South) Credit period received from creditors: 207/953*365days (North) / 358/772*365days (South) Return on capital employed: ( )/( ) (North) / ( )/( ) (South) 9 10

11 You are the financial manager of ME Video Game Company Limited. Your staff has calculated accounting ratios of the company and its competitor, PlayGame Company Limited. Based on her workings, please advise your boss which one is better by putting a chop (WIN/LOSE/DRAW) next Possibly to that ratio. ME Video Game Co Ltd sells video games at a higher price! Or the purchase price of video game is Activity 3: Case Study Ratios ME Video Game Co Ltd PlayGame Co Ltd lower than that of PlayGame Company! Profitability Gross Profit Ratio 25% 20% Net Profit Ratio 12.5% 12.5% Liquidity Current Ratio 9:1 4:1 Quick Ratio 4:1 1:1 11 Profitability Activity 3: Case Study It is rarely to have an equivalent NP ratio for You are the financial manager of ME Video Game Company different Limited. Your companies. staff has calculated accounting ratios of the company and its competitor, They PlayGame have Company the same Limited. Based on her workings, please advise your boss which one is better by putting a proportion between the chop (WIN/LOSE/DRAW) next to that ratio. net profit figure and the sales figure for Ratios ME Video Game Co Ltd both PlayGame companies. Co Ltd Gross Profit Ratio 25% 20% Net Profit Ratio 12.5% 12.5% Liquidity Current Ratio 9:1 4:1 Quick Ratio 4:1 1:1 12 Teacher discusses with students which company is performing better and possible reasons and implications of the ratios Same NP ratio means they have the same proportion for the net profit figure and sales figure. Higher GP ratio may result from high selling price (high profit margin) or lower cost of good sold (cost control policy). Higher NP ratio due to tight control on expenses

12 Activity 3: Case Study You are the financial manager of ME Video Game Company Limited. Your staff has calculated the accounting ratios and its competitor, PlayGame Company Limited. Based on the calculations, please advise management which company is better by chopping (WIN/LOSE/DRAW) the ratio. Profitability Ratios ME Video Game Co Ltd PlayGame Co Ltd Ratios Management Efficiency Activity 3: Case Study ME Video Game Co PlayGame Co Ltd Too much Ltd stock is lying idle! Beware of obsolete stock! Stock Turnover Rate 3 times 4.8 times Gross Profit RatioME Video Game 25% Co Ltd s current ratio of 20% 9 is far greater than required. It could be because too much money is lying idle or inventory levels are Net Profit Ratio 12.5% 12.5% high. Quick Ratios for ME is also higher than Liquidity necessary! ME may encounter bankruptcy risk! Current Ratio 9:1 4:1 Quick Ratio 4:1 1:1 13 Credit Period Allowed to Debtors Credit Period Received from Creditors Return on Capital Employed 114 days 61 days 60 days 40 days 24% 34% 14 Benchmark for current and quick ratios are 2:1 and 1:1 respectively. Greater than the benchmark rate means the company is holding excess cash or idle resources. Conversely, the lower than benchmark rate causes liquidity problems and company may not have adequate resources to meet its short-term debt. The greater the stock turnover rate, the shorter the period between purchase and sale. If ratios are too low, it means the company is holding too much stock and risking obsolescence and potential damage

13 Activity 3: Case Study Activity 3: Case Study Ratios ME Not Video efficient Game in debt Co collection! PlayGame Co Ltd Poor credit controls Ltd may result in bad debts! Management Efficiency Ratios Management Efficiency ME Video Game Co Ltd PlayGame Co Ltd Stock Turnover Rate 3 times 4.8 times Credit Period Allowed to Debtors Credit Period Received from Creditors Return on Capital Employed 114 days 61 days 60 days 40 days 24% 34% Stock Turnover Rate 3 times 4.8 times ME settles accounts payable slowly and can have more \$\$\$ (working capital) for daily Credit Period Allowed to 114 operations! days 61 days Debtors Credit Period Received 60 days 40 days from Creditors Return on Capital Employed 24% 34% The shorter the credit period allowed to debtors, the greater the company s efficiency. Lower ratios mean the company is capable of collecting debts quicker and reduces the chance of bad debts and increases company cash flow. Contrary to the credit period allowed to debtors, longer credit periods offered from creditors is suggested. It means that the company is capable of maintaining good supplier relationships and a longer period is being allowed. However, credit periods should not be too long as it indicates the company may be risking liquidity problems and thus unable to repay debts. Moreover, delaying payments may have a negative effect on the company s image and reputation

14 Activity 3: Case Study Summary of Lesson 1 Ratios Management Efficiency ME Video Game Co Ltd 17 PlayGame Co Ltd Stock Turnover Rate 3 times 4.8 times Credit Period Allowed to 114 days 61 days Debtors ME has managed a lower return! Unable to make efficient use of resources to Credit Period Received 60 generate days income! 40 days from Creditors Return on Capital Employed 24% 34% Profitability Ratios Net Profit Ratio Gross Profit Ratio Accounting Ratios Current Ratio Liquidity Ratios Stock Turnover Rate 18 Liquid Ratio Credit Period Allowed to Debtors Management Efficiency Ratio Credit Period Return on Received Capital from Employed Creditors The higher the ROCE, the better the performance of the company. It means that the company is able to use its funds efficiently. Teacher concludes lesson and highlights major accounting ratios discussed lesson

15 Preparation for next lesson 19 Activity 4: Group Discussion and Presentation You are the financial controller of North Ltd or South Ltd. Your boss would like you to comment on the performance of the company with industry level and bring out the improvement directions and methods. Here are the industry ratios: Profitability Ratios Toy Industry Gross Profit Ratio 50% Net Profit Ratio 10% Liquidity Current Ratio 3:1 Quick Ratio 1.5:1 Management Efficiency Stock Turnover Rate Credit Period Allowed to Debtors Credit Period Received from Creditors 5 times 2 months 2 months 20 Topic Return A04 on Capital Employed 10% Preparation for next lesson Teacher asks students to consider the usefulness of accounting ratios and the limitation of the ratio analysis. End of Lesson 1 Lesson 2 Teacher starts the lesson by asking students to use the ratios calculated in Activity 2, to interpret the performance of companies compared with the industry average level and his competitor. Students are required to divide into 6 groups and their role were assigned as follows: Gp1: You are North Ltd financial controller and is responsible for calculating and evaluating the profitability ratio Gp2: You are North Ltd financial controller and is responsible for calculating and evaluating the liquidity ratio Gp3: You are North Ltd financial controller and is responsible for calculating and evaluating the management efficiency ratio Gp4: You are South Ltd financial controller and is responsible for calculating and evaluating the profitability ratio Gp5: You are South Ltd financial controller and is responsible for calculating and evaluating the liquidity ratio Gp6 You are South Ltd financial controller and is responsible for calculating and evaluating the management efficiency ratio Students are given 8 minutes to discuss among themselves and formulate their arguments. Representative from each group will present their ideas. 2 minutes will be given to present their performance and improvement methods

16 Activity 4: Group Discussion and Presentation Here are the background of two companies: North Ltd: Target Customers: Teenager/infant/baby Price range: \$200 - \$500 Products: Basketball & football sportswear, Sports equipment, Trendy sports clothes Remarks: strong marketing strategies, invites Stars as spokespersons, advertises in different channels, good in design History: about 5 years South Ltd: Target customers: Adult/Elderly Price Range: above \$800 Products: Golf/Tennis/Casual sportswear, Golf/Tennis Equipment Remarks: many loyal high-class customers, good quality, suppliers give longer credit payment periods History: long history Activity 4: Group Discussion and Presentation North Ltd: Group 1: Profitability Group 2: Liquidity Group 3: Management Efficiency Before discussion, teacher covers the background of the two companies. Teacher should also highlight that although the ratio calculations are important, students should also consider other issues, such as target customers history and product range, etc. when doing evaluations. Teacher asks students to start their presentations. Some suggested arguments: (numerical answer is in Slide 9) Profitability of North Ltd (Group 1) Company maintains higher GP (65%) ratio than the industry (50%) benchmark Possibly due to high price strategy adopted by North Ltd compared to the industry benchmark NP ratio is (8.6%). It is below industry average (10%) Spends too much on marketing and advertising, e.g. invite Stars as spokespersons Suggestion: more effective internal cost controls and investigate methods to reduce expenses Liquidity of North Ltd (Group 2) Both Current (6.0:1) and Quick Ratios (4.8:1) are far above industry averages (3:1 and 1.5:1) No problem in meeting short-term debts However, too much money is idle and the company is not making efficient use of its financial resources Suggestion: review financial resources and formulate a strategy to make better use of capital Management Efficiency of North Ltd (Group 3) Stock Turnover Rate (4 times) Lower than industry average (5 times) Lower efficiency with risk of obsolete stock Suggestion: reduce selling price to speed up outdated stock sales Credit period allowed to debtors: Debtors on average take 3.7 months to pay Too long compared with industry averages (2 months) and risk of bad debts increase Suggestion: Reduce the credit period allowed to debtors; strengthen and tighten debt collection policies Credit period received from creditors: On average creditors pay within 2.6 months Similar to industry average (2 months) Able to use its short-term financing to fund activities and make efficient use of funds Return on capital employed Same as industrial average (10%) Efficient use of funds to generate income 21 22

17 Activity 4: Group Discussion and Presentation Activity 4: Group Discussion and Presentation Conclusion South Ltd: Group 4: Profitability Profitability North Ltd South Ltd Liquidity North Ltd South Ltd Group 5: Liquidity Management Efficiency North Ltd South Ltd Group 6: Management Efficiency Some suggested arguments: Profitability of South Ltd (Group 4) Both GP ratio (57.4%) and NP ratio (14.6%) are a bit higher than industry averages (50% and 10% respectively) Able to maintain effective internal company cost controls on materials purchases and expenses Suggestion: company can investigate other methods to further control costs to increase profit margins Liquidity of South Ltd (Group 5) Both Current Ratio (2.7:1) and Quick Ratio (2.2:1) are better than industry averages (3:1 and 1.5:1 respectively) No problem in meeting its short-term debts Suggestion: Ratios are above normal requirements (current 2:1; Liquid 1:1), to increase returns, the company can invest its financial resources in bonds and shares to maximise profits Management Efficiency of South Ltd (Group 6) Stock Turnover Rate: (4.5 times) similar to industrial average (5 times) able to maintain inventory control levels Credit period allowed to debtors: Debtors on average take 2.4 months to pay Similar to industry level (2 months) Able to collect quickly from debtors and have more funds available for short-term investments Credit period received from creditors: On average repay creditors within 5.6 months Much higher than industry average (2 months) Slow payments could result in damage to image and reputation making it difficult to find suppliers; or call for bankruptcy by its creditors However, as it is a long established company, suppliers are most likely confident in granting a longer credit period Suggestion: speed up repayment periods Return on capital employed A bit lower than industry average (10%) Less efficient in utilising funds to generate revenue Suggestion: investigate methods on efficient use of funds e.g. investment opportunities with higher returns Students can refer to Students Worksheet P.8 and complete the table during discussions. Teacher should comment upon students view. Teacher should state that there is no definite answer as to how a company can have an absolute advantage over competitors. In reality, it also holds true. Teacher should also mention that financial ratios are useful tools in evaluating different companies performance, however, one should consider that different interpretations can be reached if they are supported with reasonable information

18 Activity 5: Debate Ratios analysis is the best method to evaluate financial performance! Activity 5: Debate Ratios analysis is the best method to evaluate financial performance! Teacher asks students to conduct a debate on the statement: Ratios analysis is the best method to evaluate company performance! Divide students into 5 groups. Each group will divide into half, as the affirmative (benefits of ratios analysis) side and the negative (limitations of ratios analysis) side. 8 minutes is granted to discuss the statement. Both sides need to formulate arguments and present their views within the group. Teacher should use the last 5 minutes to make conclusions regarding the debate topics Some suggested arguments for the proposition (Benefits of ratios analysis): Helpful to review trends between periods for the same company Useful to compare a company with industry competitors, especially with companies in different countries because figures are stated in terms of standard units e.g. %, times etc. Provides a complete picture of an entity compared to financial statements Provides pointers towards interest areas of a company Overtrading can be financially disastrous and ratios can be used to identify it

19 Activity 5: Debate Ratios analysis is the best method to evaluate financial performance! Summary of Lesson 2 Ratio analysis has benefits and limitations. However, without ratios, comparisons are difficult to make between different financial statements and stakeholders do not have enough information for decision-making. With ratios, financial statements can be interpreted and applied to satisfy user requirements. So, ratio analysis is still the common method to effectively evaluate companies Some suggested arguments against the proposition (Limitations of ratios analysis): Teacher concludes the lesson by highlighting the key points. Companies may adopt different accounting policies/standards and resulting figures are difficult to compare Different definitions of accounting ratios for different analysts e.g. Earnings before interest and tax, Earnings before tax, Earnings after interest and tax etc Ratios are calculated using averages or ending values and difficult to identify seasonal business fluctuations Not applicable for different industries and different size comparisons Use of misleading ratios may result in poor quality decision making 27 28

20 The End 29 End of Lesson 2

21 : Student Worksheet P.1 Accounting Module Financial Accounting : Activity 1: Matching Match the following ratios with the correct formulas: Gross Profit Ratio Current assets Current Liabilities Net Profit Ratio Profit before interest & tax Equity, Preference shares + LT Liabilities x 100% Current Ratio Net profit Sales x 100% Liquid Ratio Average Accounts Receivable Sales x 365 days Stock Turnover Rate Gross Profit Sales x 100% Debtors Collection Period Cost of goods sold Average Stock Creditors Repayment Period Current Assets Inventory Current Liabilities Return on Capital Employed Average Accounts Payable Purchases x 365 days BAFS As at April 2009

22 : Student Worksheet P.2 Activity 2: Problem Solving North Ltd and South Ltd are both retailers operating the same market and are very similar. The financial statements of North Ltd and South Ltd for Year 7 are as follows: Income statement for the year ended 31 December Year 7 North Ltd South Ltd \$000 \$000 \$000 \$000 Sales 2,580 2,000 Less Cost of goods sold Opening inventories Purchases ,153 1,002 Closing inventories Gross profit 1,677 1,148 Administrative expenses Selling expenses Finance cost Net profit Balance sheets as at 31 December Year 7 ASSETS North Ltd South Ltd Non-current assets \$ \$ \$ \$ Property, plant and equipment 3,680 5,300 Current assets Inventories Trade receivables Cash and cash equivalents 200 1, ,930 6,250 CAPITAL AND LIABILITIES Capital Share capital 2,500 2,500 Retained profit 1,223 1,392 3,723 3,892 Non-current liabilities Bank loan 1,000 2,000 Current liabilities Trade payables ,930 6,250 BAFS As at April 2009

23 : Student Worksheet P.3 Calculate the ratios of the two companies: Ratios North Ltd South Ltd Profitability Gross Profit Ratio Net Profit Ratio Liquidity Current Ratio Quick Ratio Management Efficiency Stock Turnover Rate Credit Period Allowed to Debtors Credit Period Received from Creditors Return on Capital BAFS As at April 2009

24 : Student Worksheet P.4 Activity 3: Case Study You are the financial manager of ME Video Game Company Limited. Your staff has calculated accounting ratios for the company and its competitor, PlayGame Company Limited. Based on the calculations, advise management which company is better by chopping (WIN/LOSE/DRAW) next to that ratio. Ratios ME Video Win/Lose/Draw PlayGame Co Game Co Ltd (reasons) Ltd Profitability Gross Profit Ratio 25% 20% Net Profit Ratio 12.5% 12.5% Liquidity Current Ratio 9:1 4:1 Quick Ratio 4:1 1:1 Management Efficiency Stock Turnover Rate 3 times 4.8 times Credit Period Allowed to Debtors 114 days 61 days Credit Period Received from Creditors 36.5 days 40 days Return on Capital 24% 34% BAFS As at April 2009

25 : Student Worksheet P.5 Activity 4: Group Discussion and presentation You are the financial controller of North Ltd or South Ltd. Your boss asks you to comment on the company performance compared to industry levels and show the directions and methods. Here are the industry ratios: Ratios Toy Industry Profitability Gross Profit Ratio 50% Net Profit Ratio 10% Liquidity Current Ratio 3:1 Quick Ratio 1.5:1 Management Efficiency Stock Turnover Rate Credit Period Allowed to Debtors Credit Period Received from Creditors 5 times 2 months 2 months Return on Capital 10% BAFS As at April 2009

26 : Student Worksheet P.6 Here are the two companies backgrounds: North Ltd: Target Customers: Teenager/infant/baby Price range: \$200 - \$500 Products: Basketball & football sportswear, Sports equipment, Trendy sports clothes Remarks: strong marketing strategies, invites Stars as spokespersons, advertises in different channels, good in design History: about 5 years South Ltd: Target customers: Adult/Elderly Price Range: above \$800 Products: Golf/Tennis/Casual sportswear, Golf/Tennis Equipment Remarks: many loyal high-class customers, good quality, suppliers give longer credit payment periods History: long history North Ltd: Profitability Comments: Improvements: North Ltd: Liquidity Comments: BAFS As at April 2009

27 : Student Worksheet P.7 Improvements: North Ltd: Management Efficiency Comments: Improvements: South Ltd: Profitability Comments: Improvements: South Ltd: Liquidity Comments: BAFS As at April 2009

28 : Student Worksheet P.8 Improvements: South Ltd: Management Efficiency Comments: Improvements: Fill in your own answers below: Profitability North Ltd South Ltd Liquidity North Ltd South Ltd Management Efficiency North Ltd South Ltd BAFS As at April 2009

29 : Student Worksheet P.9 Activity 5: Debate Ratios analysis is the best method to evaluate financial performance! Write your arguments For and Against this statement. Arguments FOR the statement: BAFS As at April 2009

30 : Student Worksheet P.10 Arguments AGAINST the statement: BAFS As at April 2009

### BAFS Elective Part Accounting Module - Financial Accounting

Accounting Module - Financial Accounting : Technology Education Section Curriculum Development Institute Education Bureau, HKSARG April 2009 Accounting Ratios Profitability Ratios Liquidity Ratios Management

### FINANCIAL ACCOUNTING TOPIC: FINANCIAL ANALYSIS

SYLLABUS Compulsory part Basic ratio analysis 1. State the general functions of accounting ratios. 2. Calculate and interpret the following ratios: a. working capital/current ratio, quick/liquid/acid test

### Associated Files: Ratios worksheet

Unit 4 Business accounting Ratios Instructions and answers for Teachers These instructions should accompany the OCR resource Ratios which supports the OCR Level 3 Cambridge Technicals in Business Unit

### Financial Statements and Ratios: Notes

Financial Statements and Ratios: Notes 1. Uses of the income statement for evaluation Investors use the income statement to help judge their return on investment and creditors (lenders) use it to help

### Ratios from the Statement of Financial Position

For The Year Ended 31 March 2007 Ratios from the Statement of Financial Position Profitability Ratios Return on Sales Ratio (%) This is the difference between what a business takes in and what it spends

### Using Accounts to Interpret Performance

Using s to Interpret Performance ing information is used by stakeholders to judge the performance and efficiency of a business Different stakeholders will look for different things: STAKEHOLDER Shareholders

### Income Measurement and Profitability Analysis

PROFITABILITY ANALYSIS The following financial statements for Spencer Company will be used to demonstrate the calculation of the various ratios in profitability analysis. Spencer Company Comparative Balance

### COMPANIES INTERPRETATION OF FINANCIAL STATEMENTS 13 MARCH 2014

COMPANIES INTERPRETATION OF FINANCIAL STATEMENTS 13 MARCH 2014 In this lesson we: Introduction Lesson Description Look at analysing financial statements and its purpose Consider users of financial statements

### Interpretation of Financial Statements

Interpretation of Financial Statements Author Noel O Brien, Formation 2 Accounting Framework Examiner. An important component of most introductory financial accounting programmes is the analysis and interpretation

### For our curriculum in Grade 12 we are going to use ratios to analyse the information available in the Income statement and the Balance sheet.

SUBJECT: ACCOUNTING GRADE 12 CHAPTER: COMPANIES LESSON: ANALYSIS AND INTERPRETATION-RATIOS LESSON OVERVIEW (KNOWLEDGE AREAS) LESSON 1. Introduction 2. Analysing of financial statements and its purpose

### Ratio Analysis. A) Liquidity Ratio : - 1) Current ratio = Current asset Current Liability

A) Liquidity Ratio : - Ratio Analysis 1) Current ratio = Current asset Current Liability 2) Quick ratio or Acid Test ratio = Quick Asset Quick liability Quick Asset = Current Asset Stock Quick Liability

### performance of a company?

How to deal with questions on assessing the performance of a company? (Relevant to ATE Paper 7 Advanced Accounting) Dr. M H Ho This article provides guidance for candidates in dealing with examination

### Chapter 4. Financial Analysis: Sizing up Firm Performance. Chapter Contents. Learning Objectives

Chapter 4 Financial Analysis: Sizing up Firm Performance Learning Objectives Chapter Contents Principles Used in this Chapter 1.Why Financial Statements are Analyzed 2.Common Size Statements Standardizing

### Topic Overview BAFS Elective Part Accounting Module Financial Accounting A05: ICT Applications in Accounting S5 / S6 3 lessons (40 minutes per lesson)

: Topic Overview P.1 Topic Level Duration Topic Overview Accounting Module Financial Accounting A05: S5 / S6 3 lessons (40 minutes per lesson) Learning Objectives: 1. To understand the advantages and disadvantages

### ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION

ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION OCTOBER 2006 Table of Contents 1. INTRODUCTION... 3 2. FINANCIAL RATIOS FOR COMPANIES (INDUSTRY - COMMERCE - SERVICES) 4 2.1 Profitability Ratios...4 2.2 Viability

### Chapter. Working capital

Chapter 10 Working capital 1 10.1 Working capital Working capital is the capital available for conducting the day-to-day operations of the business and consists of current assets and current liabilities.

### Chapter 3. Learning Objectives Principles Used in This Chapter 1. An Overview of the Firm s Financial Statements

Chapter 3 Understanding Financial Statements, Taxes, and Cash Flows Agenda Learning Objectives Principles Used in This Chapter 1. An Overview of the Firm s Financial Statements 2. The Income Statement

### CHAPTER 13. Financial Analysis: The Big Picture

CHAPTER 13 Financial Analysis: The Big Picture Discuss the Need for comparative analysis and identify the tools of financial statement analysis Throughout the book we will rely on three types of comparisons

### Topic Overview BAFS Elective Part Accounting Module Cost Accounting A10: Cost-Volume-Profit Analysis S5 / S6 2 lessons (40 minutes per lesson)

: Cost-Volume-Profit Analysis Topic Overview P.1 Topic Level Duration Topic Overview Accounting Module Cost Accounting A10: Cost-Volume-Profit Analysis S5 / S6 2 lessons (40 minutes per lesson) Learning

### FINANCIAL ANALYSIS GUIDE

MAN 4720 POLICY ANALYSIS AND FORMULATION FINANCIAL ANALYSIS GUIDE Revised -August 22, 2010 FINANCIAL ANALYSIS USING STRATEGIC PROFIT MODEL RATIOS Introduction Your policy course integrates information

### National 5 Accounting Course Assessment Specification (C700 75)

National 5 Accounting Course Assessment Specification (C700 75) Valid from August 2013 First edition: April 2012 Revised: August 2015, version 1.3 This specification may be reproduced in whole or in part

### Financial Ratios and Quality Indicators

Financial Ratios and Quality Indicators From U.S. Small Business Administration Online Women's Business Center If you monitor the ratios on a regular basis you'll gain insight into how effectively you

### Week 8: Raising and managing working capital

Managing Finance (MNGFIN) Week 8: Raising and managing working capital Raising capital There is no textbook reading for this topic. Pay special attention to the additional Web-based materials and journal

### Working Capital Management Nature & Scope

Working Capital Management Nature & Scope Introduction & Definitions Components of Working Capital Significance of Working Capital Operating Cycle Types of Working Capital Net Vs Gross Working Capital

### Total shares at the end of ten years is 100*(1+5%) 10 =162.9.

FCS5510 Sample Homework Problems Unit04 CHAPTER 8 STOCK PROBLEMS 1. An investor buys 100 shares if a \$40 stock that pays a annual cash dividend of \$2 a share (a 5% dividend yield) and signs up for the

### Teacher Resource Bank

Teacher Resource Bank GCE Accounting Other Guidance: ACCN2 Update on IAS ACCN3 Updates on IAS (July 2012). The Assessment and Qualifications Alliance (AQA) is a company limited by guarantee registered

### FINANCIAL STATEMENTS ANALYSIS - AN INTRODUCTION

27 FINANCIAL STATEMENTS ANALYSIS - AN INTRODUCTION You have already learnt about the preparation of financial statements i.e. Balance Sheet and Trading and Profit and Loss Account in the module titled

### 2. Financial management:

2. Financial management: Meaning, scope and role, a brief study of functional areas of financial management. Introduction to various FM tools: ratio analysis, fund flow statement, cash flow statement.

### Chapter. How Well Am I Doing? Financial Statement Analysis

Chapter 17 How Well Am I Doing? Financial Statement Analysis 17-2 LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Explain the need for and limitations of financial statement

### FI3300 Corporation Finance

Learning Objectives FI3300 Corporation Finance Spring Semester 2010 Dr. Isabel Tkatch Assistant Professor of Finance Explain the objectives of financial statement analysis and its benefits for creditors,

### GCSE Business Studies. Ratios. For first teaching from September 2009 For first award in Summer 2011

GCSE Business Studies Ratios For first teaching from September 2009 For first award in Summer 2011 Ratios At the end of this unit students should be able to: Interpret and analyse final accounts and balance

### Ratios Formula Purpose/Use

Ratio Review: Formulas, Purpose & Use Word of Caution: Please remember that the significance of any particular ratio in the ratio analysis set is highly dependent upon the industry. For example, Gross

### Topic Overview. Strategies and Management E4: Resources Management Sources of Financing

Resources for the TEKLA curriculum at Junior Secondary Topic 7 Sources of Financing Strategies and Management Extension Learning Element Module E4 Resources Management Topic Level Duration Topic Overview

### CIMA F3 Course Notes. Chapter 3. Short term finance

CIMA F3 Course Notes c Chapter 3 Short term finance Personal use only - not licensed for use on courses 31 1. Conservative, Aggressive and Matching strategies There are three over-riding approaches to

### Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used:

Financial Ratios Financial ratios are useful indicators of a firm's performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios

### Discussion Board Articles Ratio Analysis

Excellence in Financial Management Discussion Board Articles Ratio Analysis Written by: Matt H. Evans, CPA, CMA, CFM All articles can be viewed on the internet at www.exinfm.com/board Ratio Analysis Cash

### Financial Ratio Analysis A GUIDE TO USEFUL RATIOS FOR UNDERSTANDING YOUR SOCIAL ENTERPRISE S FINANCIAL PERFORMANCE

Financial Ratio Analysis A GUIDE TO USEFUL RATIOS FOR UNDERSTANDING YOUR SOCIAL ENTERPRISE S FINANCIAL PERFORMANCE December 2013 Acknowledgments This guide and supporting tools were developed by Julie

### The Interpretation of Financial Statements. Why use ratio analysis. Limitations. Chapter 16

The Interpretation of Financial Statements Chapter 16 1 Luby & O Donoghue (2005) Why use ratio analysis Provides framework Comparison to previous years Trends identified Identify areas of concern Targets

### Financial Statement Ratio Analysis

Management Accounting 319 Financial Statement Ratio Analysis Financial statements as prepared by the accountant are documents containing much valuable information. Some of the information requires little

Ratio Analysis CBDC, NB February, 2008 Presented by ACSBE Financial Analysis What is Financial Analysis? What Can Financial Ratios Tell? 7 Categories of Financial Ratios Significance of Using Ratios Industry

### Preparing a Successful Financial Plan

Topic 9 Preparing a Successful Financial Plan LEARNING OUTCOMES By the end of this topic, you should be able to: 1. Describe the overview of accounting methods; 2. Prepare the three major financial statements

### Easter School Accounting Grade 12. Interpretation of Financial Statements 27 March 2013

KEY CONCEPTS: In this session we will focus on: - Ratios X-PLANATION INTRODUCTION: Ratios For our curriculum in Grade 12 we are going to use ratios to analyse the information available in the Income Statement

### Uses and Limitations of Ratio Analysis

Uses and Limitations of Ratio Analysis Balkrishna Parab ACS, AICWA balkrishnaparab@jbims.edu F inancial statement analysis involves comparing the firm s performance with that of other firms in the same

### Fundamentals Level Skills Module, Paper F7. Section B. 1 Zanda Co Extracts from the consolidated statement of financial position as at 31 March 2016

Answers Fundamentals Level Skills Module, Paper F7 Financial Reporting March/June 2016 Sample Answers Section B 1 Zanda Co Extracts from the consolidated statement of financial position as at 31 March

### Current Assets. Current Liabilities. Quick Assets or Liquid Assets. Current Liabilities. 1. Liquidity Ratios 1 Current Ratio Formula.

1. Liquidity Ratios 1 Current Ratio Current Assets Current Liabilities This ratio shows short-term financial soundness of the business. Higher ratio means better capacity to meet its current obligation.

### Teacher Resource Bank

Teacher Resource Bank GCE Accounting Other Guidance: Layouts and Formulae ACCN1: Layouts ACCN2: Layouts and Formulae ACCN4: Layouts and Formulae (Updated July 2012) The Assessment and Qualifications Alliance

### Cash Flow Management Workshop

Cash Flow Management Workshop CBDC, NB February 2008 Presented by: ACSBE Previous Training Session The seven attributes to success One line diagnostic tools Understanding margins Vertical and Horizontal

### Financial/Accounting Analysis Ratios Excel Calculator

User Guide Financial/Accounting Analysis Ratios Excel Calculator Dec 2008 Version 2 copyright 2008 Business Tools Templates Financial/Accounting Analysis Ratios Excel Calculator Financial Analysis Ratios

### Analyzing the Statement of Cash Flows

Analyzing the Statement of Cash Flows Operating Activities NACM Upstate New York Credit Conference 2015 By Ron Sereika, CCE,CEW NACM 1 Objectives of this Educational Session u Show how the statement of

### E2-2: Identifying Financing, Investing and Operating Transactions?

E2-2: Identifying Financing, Investing and Operating Transactions? Listed below are eight transactions. In each case, identify whether the transaction is an example of financing, investing or operating

### Topic 4 Working Capital Management. 1. Concept of Working Capital 2. Measuring Working Capital and Net Working Capital. 4.

Topic 4 Working Capital Management 1. Concept of Working Capital 2. Measuring Working Capital and Net Working Capital 3. Optimization i i of Working Capital 4. Applications 80 Learning objectives This

### Article - Working Capital Management By Bernard Vallely FCCA MBA Examiner Professional 1 Managerial Finance & Professional 2 Financial Management

Article - Working Capital Management By Bernard Vallely FCCA MBA Examiner Professional 1 Managerial Finance & Professional 2 Financial Management Working Capital An organisation s working capital refers

Unit 4 Business accounting Layout of a Balance Sheet Instructions and answers for Teachers These instructions should accompany the OCR resource Layout of a Balance Sheet which supports the OCR Level 3

### FINANCIAL RATIO ANALYSIS: PUTTING THE NUMBERS TO WORK

FINANCIAL RATIO ANALYSIS: PUTTING THE NUMBERS TO WORK By John Bajkowski Financial ratio analysis uses historical financial statements to quantify data that will help give investors a feel for a firm s

### Guidance on Accounting Elements

Guidance on Accounting Elements OCR GCE in Business Studies August 2012 The following guidance has been prepared in order to assist centres in the preparation of their candidates for the accounting elements

### The Nature, Elements and Importance of Working Capital

C. WORKING CAPITAL MANAGEMENT 1. The nature, elements and importance of working capital 2. Management of inventories, accounts receivable, accounts payable and cash 3. Determining working capital needs

### ACCOUNTING RATIOS I. MODULE - 6A Analysis of Financial Statements. Accounting Ratios - I. Notes

MODULE - 6A Accounting Ratios - I 8 ACCOUNTING RATIOS I In the previous lesson, you have learnt the relationship between various items of the financial statements. You have also learnt various tools of

### Return on Equity has three ratio components. The three ratios that make up Return on Equity are:

Evaluating Financial Performance Chapter 1 Return on Equity Why Use Ratios? It has been said that you must measure what you expect to manage and accomplish. Without measurement, you have no reference to

### SESSION 07 INTERPRETATION OF FINANCIAL STATEMENTS PART 1. GDM Managing Finance

SESSION 07 INTERPRETATION OF FINANCIAL STATEMENTS PART 1 GDM Managing Finance Accounting Management Accounting Financial Accounting Session 07 Synopsis 1. Objective of accounting 2. Users of accounting

### tutor2u tutor2u Interactive Business Simulations Finance: Cash Flow Management

Interactive Business Simulations Finance: Cash Flow Management Note: this interactive simulator is designed to be viewed using an up-to-date internet browser. Users must also have Macromedia Flash Player

### Calculating profitability indicators - profitability

Calculating profitability indicators - profitability Introduction When a business is deciding whether to grant credit to a potential customer, or whether to continue to grant credit terms to an existing

### Fundamental analysis

Fundamental analysis 2 June 2016 CERN Finance Club c.laner@cern.ch Introduction Let s cover the two main types of investment analysis used in traditional investing Today: Fundamental analysis Next time:

### An understanding of working

23 Working Capital and the Construction Industry Fred Shelton, Jr., CPA, MBA, CVA EXECUTIVE SUMMARY An understanding of working capital is crucial to understanding and analyzing the financial position

### FIN 3000. Chapter 4. Financial Analysis. Liuren Wu

FIN 3000 Chapter 4 Financial Analysis Liuren Wu Overview 1. Why Do We Analyze Financial Statements 2. Common Size Statements Standardizing Financial Information 3. Using Financial Ratios 4. Selecting a

### Evaluation of Indian Construction Companies using Financial Tool

IJSTE - International Journal of Science Technology & Engineering Volume 1 Issue 11 May 2015 ISSN (online): 2349-784X Evaluation of Indian Construction Companies using Financial Tool Mr. Gaurav R. Desai

### Paper F9. Financial Management. Fundamentals Pilot Paper Skills module. The Association of Chartered Certified Accountants

Fundamentals Pilot Paper Skills module Financial Management Time allowed Reading and planning: Writing: 15 minutes 3 hours ALL FOUR questions are compulsory and MUST be attempted. Do NOT open this paper

### Ratios and interpretation

Unit Ratios and interpretation As we learnt in our earlier studies, accounting information is used to answer two key questions about a business: Is it making a profit? Are its assets sufficient to meet

### CHAPTER 6. P.6.17 The following are the ratios relating to the activities of National Traders Ltd:

CHAPTER 6 Solved Problems P.6.17 The following are the ratios relating to the activities of National Traders Ltd: Debtors velocity (months) 3 Stock velocity (months) 8 Creditors velocity (months) 2 Gross

### Engineering Economics 2013/2014 MISE

Problem: JS, Inc. shows the following accounting records for 2011: Sales commissions 15000 Beginning merchandise inventory 16000 Ending merchandise inventory 9000 Sales 185000 Advertising 10000 Purchases

### Glossary of Financial Terms & Ratios for Entrepreneurs

Glossary of Financial Terms & Ratios for Entrepreneurs TERM DEFINITION Capital Expenditure Accounts Payable Accounts Receivable Accrual Accounting Asset Balance Sheet Break-Even Point Business Plan Capital

### Financial Statements Tutorial

Financial Statement Review: Financial Statements Tutorial There are four major financial statements used to communicate information to external users (creditors, investors, suppliers, etc.) - 1. Balance

### Paper F9. Financial Management. Friday 7 December 2012. Fundamentals Level Skills Module. The Association of Chartered Certified Accountants

Fundamentals Level Skills Module Financial Management Friday 7 December 2012 Time allowed Reading and planning: Writing: 15 minutes 3 hours ALL FOUR questions are compulsory and MUST be attempted. Formulae

### 9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle

9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle 9.1 Current Assets and 9.1.1 Cash A firm should maintain as little cash as possible, because cash is a nonproductive asset. It earns no

### Report Description. Business Counts. Top 10 States (by Business Counts) Page 1 of 16

5-Year County-Level Financial Profile Industry Report Architectural Services (SIC Code: 8712) in Prince George County, Maryland Sales Range: \$500,000 - \$999,999 Date: 11/07/08 Report Description This 5-Year

### 6. Show all your workings. icpar

CERTIFIED PUBLIC ACCOUNTANT FOUNDATION LEVEL 1 EXAMINATION F1.3: FINANCIAL ACCOUNTING MONDAY: 10 JUNE 2013 INSTRUCTIONS: 1. Time Allowed: 3 hours 15 minutes (15 minutes reading and 3 hours writing). 2.

### Business Studies - Financial Planning and Management Study Notes. Financial Planning and Management Study Notes:

Business Studies - Financial Planning and Management Study Notes Financial Planning and Management Study Notes: The Role of Financial Planning: The strategic role of financial management: Organisational

### RATIO ANALYSIS AND BUSINESS VIABILITY

RATIO ANALYSIS AND BUSINESS VIABILITY Timeframe: Learning Outcome: Recommended reading: Section overview 18 hours Apply ratio analysis in determining the viability of a business. Marx, J., de Swardt, C.,

### CASH FLOW STATEMENT. MODULE - 6A Analysis of Financial Statements. Cash Flow Statement. Notes

MODULE - 6A Cash Flow Statement 30 CASH FLOW STATEMENT In the previous lesson, you have learnt various types of analysis of financial statements and its tools such as comparative statements, common size

ABOUT FINANCIAL RATIO ANALYSIS Over the years, a great many financial analysis techniques have developed. They illustrate the relationship between values drawn from the balance sheet and income statement

### Calculating financial position and cash flow indicators

Calculating financial position and cash flow indicators Introduction When a business is deciding whether to grant credit to a potential customer, or whether to continue to grant credit terms to an existing

### The following information is available on Toy Inc. There are 100 shares outstanding, each selling for \$25

The following information is available on Toy Inc. There are 100 shares outstanding, each selling for \$25 Corporate tax 34.00% Interest rate 4.25% Retention ratio 65.00% Case A. Toy Inc. Zero growth in

### 1.1 Role and Responsibilities of Financial Managers

1 Financial Analysis 1.1 Role and Responsibilities of Financial Managers (1) Planning and Forecasting set up financial plans for their organisations in order to shape the company s future position (2)

### Fundamentals Level Skills Module, Paper F7 (INT)

Answers Fundamentals Level Skills Module, Paper F7 (INT) Financial Reporting (International) June 2013 Answers 1 (a) Paradigm Consolidated statement of financial position as at 31 March 2013 Assets Non-current

### BAFS Compulsory Part Introduction to Accounting

BAFS Compulsory Part Introduction to Accounting : Technology Education Section Curriculum Development Institute Education Bureau, HKSARG April 2009 1 Beauty Full Co. 2 BAFS Compulsory Part 3 BAFS Compulsory

### You have learnt about the financial statements

Analysis of Financial Statements 4 You have learnt about the financial statements (Income Statement and Balance Sheet) of companies. Basically, these are summarised financial reports which provide the

### Calculating performance indicators - liquidity

Calculating performance indicators - liquidity Introduction When a business is deciding whether to grant credit to a potential customer, or whether to continue to grant credit terms to an existing customer,

### What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated?

What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? HOCK international - 2004 1 HOCK international - 2004 2 How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? HOCK

### BACKGROUND KNOWLEDGE for Teachers and Students

Pathway: Business, Marketing, and Computer Education Lesson: BMM C6 4: Financial Statements and Reports Common Core State Standards for Mathematics: N.Q.2 Domain: Quantities Cluster: Reason quantitatively

### ILLUSTRATION 5-1 BALANCE SHEET CLASSIFICATIONS

ILLUSTRATION 5-1 BALANCE SHEET CLASSIFICATIONS MAJOR BALANCE SHEET CLASSIFICATIONS ASSETS = LIABILITIES + OWNERS' EQUITY Current Assets Long-Term Investments Current Liabilities Long-Term Debt Capital

### It is vital that the most important ratios are learned, and that intelligent comment can be made on the results.

Interpretation of Financial Statements By: Brendan Doyle, BA (Hons) in Accounting, MBS Accounting, MA, H. Dip. Ed. Acting Head of Department of Accounting & Business Computing in Athlone Institute of Technology,

### how to prepare a cash flow statement

business builder 4 how to prepare a cash flow statement zions business resource center zions business resource center 2 how to prepare a cash flow statement A cash flow statement is important to your business

### 1) In words, an equity multiplier of 2 means that for every \$1:

Questions in [New Questions] 1) In words, an equity multiplier of 2 means that for every \$1: [A] of debt, a firm has \$2 in equity. [B] in equity, a firm has \$2 in debt. [C] in assets, a firm has \$2 in

### Ratio Analysis 0.75. Fixed Assets Fixed Assets + Net Working Capital =0.75 Fixed Assets

Ratio Analysis CA Past Years Exam Answer Answer to Q.1: (Nov, 009) Fixed assets ` 18,00,000 Proprietor s funds ` 4,00,000 Note: 1 Ratio of fixed assets to proprietor s funds 0.75 Properietors Fund 0.75

### 27Forecasting cash flows 27Activity 27.1 open-ended question.

27Forecasting cash flows 27Activity 27.1 open-ended question. Activity 27.2 (page 497): April cash flow 1 Draw up a revised cash-flow forecast for April assuming: cash sales are forecast to be \$1,000 higher

### MAN 4720 STRATEGIC MANAGEMENT AND POLICY FORMULATION FINANCIAL ANALYSIS GUIDE

MAN 4720 STRATEGIC MANAGEMENT AND POLICY FORMULATION FINANCIAL ANALYSIS GUIDE Revised -December 13, 2011 1 FINANCIAL ANALYSIS USING STRATEGIC PROFIT MODEL RATIOS Introduction Your policy course integrates

### Brain J. Dunn, CEO Richfield, Minnesota U.S Latest fiscal year: 2010 Best Buy is an American retailer that sells a wide variety of electronic

Current Shareholders in Best Buy should hold their stock until price increases, and new investors should not invest if looking for fast money, Best Buy s stock may not more until more economic growth occurs.

### Chapter Review Problems

Chapter Review Problems Unit 17.1 Income statements 1. When revenues exceed expenses, is the result (a) net income or (b) net loss? (a) net income 2. Do income statements reflect profits of a business

### HEALTHCARE FINANCE An Introduction to Accounting and Financial Management. Online Appendix A Financial Analysis Ratios

11/16/11 HEALTHCARE FINANCE An Introduction to Accounting and Financial Management Online Appendix A Financial Analysis Ratios INTRODUCTION In Chapter 17, we indicated that financial ratio analysis is

### Chapter 4 Analysis of Financial Statements ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS

Chapter 4 nalysis of Financial Statements NSWERS TO SELECTED END-OF-CHPTER QUESTIONS 4-1 a. liquidity ratio is a ratio that shows the relationship of a firm s cash and other current assets to its current