Intermediate (IPC)Course Paper 3 Part 2 Financial Management Chapter 3 CA. N Raja Natarajan, B.Com, PGDBA, ACA

Size: px
Start display at page:

Download "Intermediate (IPC)Course Paper 3 Part 2 Financial Management Chapter 3 CA. N Raja Natarajan, B.Com, PGDBA, ACA"

Transcription

1 Intermediate (IPC)Course Paper 3 Part 2 Financial Management Chapter 3 CA. N Raja Natarajan, B.Com, PGDBA, ACA

2 Classification of Ratios Liquidity Ratios Capital Structure / Leverage Ratios Activity Ratios Profitability Ratios

3 Liquidity Ratios Current Ratio Quick Ratio Cash Ratio / Absolute Liquidity Ratio Basic Defense Interval Ratio

4 LIABILITIES ASSETS CURRENT LIABILITIES CURRENT ASSETS

5 Current Ratio Current Liability Current Asset Working Capital

6 Current Ratio DANGER ZONE Current Liability Current Asset Working Capital

7 Scenario I II III Current Asset Current Liability Net Working Capital Current Ratio 2:1 1:1 0.67:1

8

9 350 Quick Ratio / Acid Test Ratio Current Liability Current Assets Liquid Assets 0 Working Capital

10 CURRENT ASSET 300 QUICK ASSETS 200 CURRENT LIABILITY 300 QUICK RATIO = QUICK ASSETS / CURRENT LIABILITY = 200/300 = 0.67:1

11 360 Preferable Liquidity Position Current Liability Current Assets Liquid Assets Working Capital

12

13 Absolute Liquid Ratio Current Liability Absolute Liquid Assets 0 Working Capital

14 CURRENT ASSET 350 LIQUID ASSETS 250 ABSOLUTE LIQUID ASSET 150 CURRENT LIABILITY 300 ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS / CURRENT LIABILITY = 150/300 = 0.50:1

15

16 CASH EXPENSES P.A DAYS = CASH EXPENSE PER DAY CASH RESOURCES AVAILABLE CASH EXPENSE PER DAY NO. OF DAYS BASIC DEFENSE INTERVAL

17 Capital Structure Ratios Equity Ratio Debt Ratio Debt to Equity Ratio

18 Share Holders Funds 100 Total Capital Employed 400 EQUITY RATIO = Share holder Funds Total Capital Employed = 100/400 = 25%

19 DEBT (OUTSIDE LIABILITIES) 400 TOTAL CAPITAL EMPLOYED 500 DEBT RATIO =DEBT (OUTSIDE LIABILITIES) TOTAL CAPITAL EMPLOYED = 400/500 = 80%

20 DEBT (OUTSIDE LIABILITIES) 400 EQUITY 100 DEBT-EQUITY RATIO =DEBT (OUTSIDE LIABILITIES) EQUITY (SHARE HOLDERS FUNDS) = 400/100

21 DEBT EQUITY RATIO TIMES PERCENTAGE% 400/ /100 x 100 4:1 DEBT 4 TIMES OF EQUITY 400% DEBT 400% OF EQUITY

22 Coverage Ratio Debt service coverage Ratio (DSCR) Interest Coverage Ratio Preference Dividend Coverage Ratio Capital Gearing Ratio

23 Interest on Loan = 100 Installment = Total Debt Obligation = 200 PBDIT = 400 DSCR = Profit Before Depreciation and Interest Interest + Installment = 400/200 = 2 times

24

25 Profit before depn ; Interest and Tax (PBDI T) = 400 Interest on Loan =100 Interest coverage ratio = PBDIT Interest on loan = 400/100 = 4 times

26

27 PAT = 100 Preference Dividend Liability = 25 Preference Dividend Coverage Ratio = Profit After Tax Pref. Dividend Liability = 100/25 = 4 times

28

29 Calculation : Share holders funds = 200 Interest Bearing Funds = 700 Capital Gearing Ratio = Interest Bearing Funds Share holders funds = 700/200 = 3.5 times

30 Activity Ratios Capital Turnover Ratio Fixed Asset Ratio Total Asset Turnover Ratio Working capital Turnover Ratio

31 Calculation I II III Sales Capital Employed Capital Turnover Ratio 1 Time 2 Times 0.5 Times

32

33 Fixed Asset Turnover Ratio = Sales Average Fixed Assets

34

35 Calculation I II III Sales Opening Assets Closing Assets Average Assets Nil Total Assets Turnover Ratio 1.33 Times 0.80 Times 1 Times

36 Working Capital Ratio Inventory Turnover Ratio Debtors Turnover Ratio Creditors Turnover Ratio

37

38 Calculation I II III Cost of Sales Opening Inventory Closing Inventory Average Inventory Inventory T/O Times 2.67 Times 1.60 Times Profit Good Best Reasonable

39

40 Cost of Goods Sold = Cost of Goods Sold per No. of. Days in a Year Day No. of. Days of Inventory = Average Inventory Cost of Goods Sold per day

41

42 Calculation I II III Sales Cash Sales Credit Sales Opening Debtors Closing Debtors Average Debtors Debtors T/O 4 Times 2 Times 1.5 Times Recovery Speed Good Better Should Improve

43

44 Credit Sales = Average Daily Credit Sales Opening Debtors + Closing Debtors = Average Debtors Average Debtors = Average Collection Period Average Daily Credit Sales

45 Sales-3,65,000 Open Debtors Cash Sales Credit Sales Credit Sales per Day (/ 365 Days) Closing Debtors Average Debtors Average Collection Period Avg. Drs = =35 Avg. Credit Days Sales per Day

46

47 Calculation I II III Purchases Credit Purchases(60)% Opening Creditors Closing Creditors Average Creditors 150 Creditors Turnover 4 Times 2 Times 1.5 Times Interpretation Rapid Settlement Average Rotation Liberal/Stre ss

48

49 Annual Credit Purchases Days = Credit Purchases per Day Opening Creditors + Closing Creditors = Average Creditors 2 Average Payment Period = Average Creditors Credit Purchases per Day

50 Cash Purchases Purchases-3,65,000 Credit Purchases Opening Crs Closing Crs Credit Purchases per Day (/ 365 Days) Average Creditors Average Crs Average = Payment Period Avg. Credit Purchase per Day = =35 Days

51

52 General Profitability Ratio Gross Profit Ratio Operating Ratio Operating Profit Ratio Expenses Ratio Net Profit Ratio

53

54 Calculation: Gross Profit 20 Net Sales 100 x 100 = 20% Gross Sales Sales Return

55 Operating Ratio = Operating Cost Net Sales x 100

56 Sales 100 Sales return 10 Raw material Consumed 60 Manufacturing Expenses 10 Admin Expenses 5 Cost of goods sold Other operating expenses Net Sales 90 Operating cost 75 Operating Ratio = Operating Cost Net Sales x100 = 75/90 x 100 = 83 %

57 Net Sales 100 Operating Cost 80 Operating Profit - 20 Operating Profit ratio = Operating Profit 20 Net Sales 100 x 100 = 20/100 x100 20%

58

59 Cost Goods Sold Cost of goods sold x 100 Net sales Expenses Admin Expenses Admin expenses x 100 Net Sales Selling & Distribution Expenses Factory Cost Factory Cost x 100 Net Sales Specific Expenses Specific expenses x100 Net Sales S & D Expenses x 100 Net Sales

60

61 Calculation : Net Profit After Tax 20 x 100 Net Sales 100 Net Profit Ratio = 20/100 x 100 = 20 %

62

63 Return on Investment Ratio Return On Asset Return on Capital Employed Return on Shareholders Equity

64 Sales 100 Less: Operating Expenses 50 Profit before Interest 50 Less: Interest (10) ROA = TOTAL ASSETS PBIT Total Assets = 50/100 = 50% = 35/100 = 35 % Profit before Tax 40 Less: 30% (12) ROA = PAT Total Assets = 28/100 = 28% Profit After Tax = 35 Profit After Tax Before Interest

65

66 BALANCE SHEET LIABILITIES ASSET Share holders funds 100 Bank Loan 100 Sundry Creditors Fixed Assets 150 Current Asset Income Statement Total Capital Employed Sales 200 Less: Operating Expense (150) Operating Profit 50 Less: Interest (10) Profit before Tax 40 ROCE = Operating profit Capital employed = 50/300x 100 = %

67

68 Return on Share holders Funds = Profit After Tax X 100 Share holders Funds

69 Return on Equity Share Holders Funds Earnings Per Share Cash Flow Earnings Per Share Dividend Per Equity Share Dividend Pay Out Ratio Dividend Yield Ratio

70 Comprehensive Illustration Depreciation 100 EP S = Profit after Tax and Pref. Dividend No. Of Equity Shares 100 Profit after Tax 1000 Preference Dividend 100 Profit after Tax and Preference Dividend 900 Equity Dividend Div. Per Share Div. Payout Ratio = 900 / 100 => 9 Per Share = Equity Dividend No. Of Equity Shares = 100 / 100 => 1 Per Share = Dividend Per Share Earnings Per Share = 1 / 9 => 11.11% Cash Flow Earnings Per Share = (PAT & Pref Dividend + Depn/Amtisn + Non Cash Expense) No. Of Equity Shares = ( )/100 = 11 Per Share Div. Yield Per Share = Div. Per Share Market Price per Share = 1/10 => 10% 10/Sh

71

72 Market Value Ratios Earnings Yield Ratio Price Earning Ratio Price to Cash Flow Ratio Market Value to Book Value Ratio

73 Earning Yield Ratio = Earning Per Share (E/P ratio) Market Price Per Share

74 Price Earnings Ratio (or) P/E Ratio = Market Price Per Share Earning Per Share

75 EPS 10 MPS 100 High P/E ratio SOLD Low EPS Low Profit 10 Times of Earnings High Expectation

76 High P/E ratio High Expectations Low profit Compare High Expectations Industry Average Other Shares High Risk Element

77 Cash Flow Earning Per Share = Cash Flow Earnings Market Price Per Share

78

79 Book Value of Share Market Value of Share

80 Equity Share Capital + Reserve & Surplus (-) Accumulated Loss Books Value No. Of Equity Shares = Books Value Per Share

81 BV = 10 MV = 30 BV to MV ratio = 30/ 10 = 3 Book Value Per Share Balance sheet Past Value Market Value Market Future

82

83 Long Term Sources of Funds Surplus Changes in WC Requirement Increase in WC Long Term Uses of Funds Deficit Changes in WC Decrease in WC

84 Balance Sheet Uses of Funds Decrease in WC Long Term Sources Long term Uses Inflow Outflow Inflow Outflow Short Term Sources Sources of Funds Short Term Uses (Increase in WC)

85 Sources of Funds Uses of Funds LONG TERM USES LONG TERM FUNDS WORKING CAPITAL

86 Sources of Funds Uses of Funds LONG TERM FUNDS LONG TERM USES -VE WORKING CAPITAL

87 Fund Flow Analysis Sources of Funds Use of Funds Working Capital aising Long Term Funds TLs Funds From Operations Disposing Long Term Assets Paying Long Term Funds Back Purchase of Long Term Assets Increase in WC Decrease in WC quity Debenture Profit before Depreciatio n and Tax Dividend & Tax

88 Current Year Income Statement Fund Flow Analysis Two Year Balance Sheet Funds Generated Operations Long Term Sources Long Term Uses Changes in WC

89

90 Fund From Operations Long Term Source Profit Before Tax (+) Depreciation/Amortization (+) Losses on the Sales of Assets/Investments (-) Profit on the Sales of Assets/Investments

91 INCOME STATEMENT BALANCE SHEET Sales Less: Operating Exp Less: Depreciation Less: Tax 100 (50) (20) PBT 30 (10) PAT SOURCES OF FUNDS Liabilitie s Capital Reserves Term loan Current Liabilities PY CY FUND FLOW STATEMENT Assets Fixed Assets Current Assets USES OF FUNDS PY CY Funds From Operations (30+20) 50 Fixed Assets ( ) Capital ( ) Term Loan (60-50) Working Capital CY[120-50] PY[90-40] =70 =50 Tax

92 Financial Soundness Despite Loss Liquidity Strain Indicators Despite Profits Diversion of Short Term Fund for Long Term Purpose Uses of Fund Flow Statement Where Funds Have Come From Funds Generated From Operations Long Term Fund Support for WC Purpose

93

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

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

More information

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

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

More information

3 Financial Analysis and Planning

3 Financial Analysis and Planning 3 Financial Analysis and Planning BASIC CONCEPTS AND FORMULAE 1. Financial Analysis and Planning Financial Analysis and Planning is carried out for the purpose of obtaining material and relevant information

More information

Ratio Analysis CBDC, NB. Presented by ACSBE. February, 2008. Copyright 2007 ACSBE. All Rights Reserved.

Ratio Analysis CBDC, NB. Presented by ACSBE. February, 2008. Copyright 2007 ACSBE. All Rights Reserved. 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

More information

Using Accounts to Interpret Performance

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

More information

FSA Note: Summary of Financial Ratio Calculations

FSA Note: Summary of Financial Ratio Calculations FSA Note: Summary of Financial Ratio Calculations This note contains a summary of the more common financial statement ratios. A few points should be noted: Calculations vary in practice; consistency and

More information

Income Measurement and Profitability Analysis

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

More information

Guidance on Accounting Elements

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

More information

LESSON 6 RATIO ANALYSIS CONTENTS

LESSON 6 RATIO ANALYSIS CONTENTS LESSON 6 RATIO ANALYSIS CONTENTS 6.0 Aims and Objectives 6.1 Introduction 6.2 Definition 6.3 How the Accounting Ratios are Expressed? 6.4 Purpose, Utility & Limitations of Ratio Analysis 6.5 Classification

More information

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

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

More information

Computing Liquidity Ratios Current Ratio = CA / CL 708 / 540 = 1.31 times Quick Ratio = (CA Inventory) / CL (708 422) / 540 =.53 times Cash Ratio =

Computing Liquidity Ratios Current Ratio = CA / CL 708 / 540 = 1.31 times Quick Ratio = (CA Inventory) / CL (708 422) / 540 =.53 times Cash Ratio = 1 Computing Liquidity Ratios Current Ratio = CA / CL 708 / 540 = 1.31 times Quick Ratio = (CA Inventory) / CL (708 422) / 540 =.53 times Cash Ratio = Cash / CL 98 / 540 =.18 times 2 Computing Leverage

More information

Ratios from the Statement of Financial Position

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

More information

ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION

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

More information

TYPES OF FINANCIAL RATIOS

TYPES OF FINANCIAL RATIOS TYPES OF FINANCIAL RATIOS In the previous articles we discussed how to invest in the stock market and unit trusts. When investing in the stock market an investor should have a clear understanding about

More information

Chapter 17: Financial Statement Analysis

Chapter 17: Financial Statement Analysis FIN 301 Class Notes Chapter 17: Financial Statement Analysis INTRODUCTION Financial ratio: is a relationship between different accounting items that tells something about the firm s activities. Purpose

More information

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

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.

More information

6. Show all your workings. icpar

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.

More information

Section 3 Financial and stock market ratios

Section 3 Financial and stock market ratios Section 3 Financial and stock market ratios Introduction 41 Ratio calculation 42 Financial status ratios 43 Stock market ratios 45 Debt: short-term or long-term? 47 Summary 48 Problems 49 INTRODUCTION

More information

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

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

More information

Financing Your Dream: A Presentation at the Youth Business Linkage Forum (#EAWY2014) Akin Oyebode Head SME Banking, Stanbic IBTC Bank, Nigeria.

Financing Your Dream: A Presentation at the Youth Business Linkage Forum (#EAWY2014) Akin Oyebode Head SME Banking, Stanbic IBTC Bank, Nigeria. Financing Your Dream: A Presentation at the Youth Business Linkage Forum (#EAWY2014) Akin Oyebode Head SME Banking, Stanbic IBTC Bank, Nigeria. Content 1 Introduction 2 Profit and loss Account or Income

More information

8. RATIO ANALYSIS SOLUTIONS TO ASSIGNMENT PROBLEMS

8. RATIO ANALYSIS SOLUTIONS TO ASSIGNMENT PROBLEMS 8. RATIO ANALYSIS SOLUTIONS TO ASSIGNMENT PROBLEMS Problem No. 1 Gross Profit 54,000 Gross Profit Margin 20% GrossPr ofit Sales GrossPr ofit Margin 54,000 / 0.20 2,70,000 Credit Sales to Total Sales 80%

More information

Financial Statements

Financial Statements Financial Statements The financial information forms the basis of financial planning, analysis & decision making for an organization or an individual. Financial information is needed to predict, compare

More information

CHAPTER 9. Ratio Analysis

CHAPTER 9. Ratio Analysis CHAPTER 9 Ratio Analysis Introduction The analysis of the financial statements and interpretations of financial results of a particular period of operations with the help of 'ratio' is termed as "ratio

More information

RATIO ANALYSIS & CASH FLOW 23 APRIL 2015 Section A: Summary Content Notes

RATIO ANALYSIS & CASH FLOW 23 APRIL 2015 Section A: Summary Content Notes RATIO ANALYSIS & CASH FLOW 23 APRIL 2015 Section A: Summary Content Notes 1. Introduction The cash flow statement reflects the movement of cash within an enterprise during a specific period. The Companies

More information

Company Financial Plan

Company Financial Plan Financial Modeling Templates http://spreadsheetml.com/finance/companyfinancialplan.shtml Copyright (c) 2009-2014, ConnectCode All Rights Reserved. ConnectCode accepts no responsibility for any adverse

More information

Ratio Analysis CHAPTER LEARNING OVERVIEW. Ratio basics

Ratio Analysis CHAPTER LEARNING OVERVIEW. Ratio basics Analysis basics Analysis compares one figure in one financial statement (say P&L account or Balance Sheet) with another figure in the same financial statement or in another financial statement of the company.

More information

COMPANIES INTERPRETATION OF FINANCIAL STATEMENTS 13 MARCH 2014

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

More information

Consolidated balance sheet

Consolidated balance sheet Consolidated balance sheet Non current assets 31/12/2009 31/12/2008 (*) 01/01/2008 (*) Property, plant and equipment 1,352 1,350 1,144 Investment property 7 11 11 Fixed assets held under concessions 13,089

More information

ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS: CASE STUDIES

ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS: CASE STUDIES ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS: CASE STUDIES THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF Bachelor of Technology in Mining Engineering By SUDIP DAS

More information

Interpretation 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

More information

Chapter- 3B Statement of Changes in Financial Position and Working Capital (Fund

Chapter- 3B Statement of Changes in Financial Position and Working Capital (Fund Chapter- 3B Statement of Changes in Financial Position and Working Capital (Fund BSNL, India For Internal Circulation Only 1 Statement of Changes in Financial Position and Working Capital (Fund) I. Statement

More information

6. Financial Planning. Break-even. Operating and Financial Leverage.

6. Financial Planning. Break-even. Operating and Financial Leverage. 6. Financial Planning. Break-even. Operating and Financial Leverage. Financial planning primarily involves anticipating the impact of operating, investment and financial decisions on the firm s future

More information

LEADing Practice Financial Scorecard Measurements

LEADing Practice Financial Scorecard Measurements LEADing Practice Financial Scorecard Measurements Scorecard Area Finance & Accounting Scorecard Group Accounting ratios Balance sheet Scorecard Performance Measurement Deferred revenue as % of total revenue

More information

Financial Ratios and Quality Indicators

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

More information

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

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

More information

Financial Statements and Ratios: Notes

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

More information

Chapter 1 Financial Statement and Cash Flow Analysis

Chapter 1 Financial Statement and Cash Flow Analysis Chapter 1 Financial Statement and Cash Flow Analysis MULTIPLE CHOICE 1. Which of the following items can be found on an income statement? a. Accounts receivable b. Long-term debt c. Sales d. Inventory

More information

Short Term Finance and Planning. Sources and Uses of Cash

Short Term Finance and Planning. Sources and Uses of Cash Short Term Finance and Planning (Text reference: Chapter 27) Topics sources and uses of cash operating cycle and cash cycle short term financial policy cash budgeting short term financial planning AFM

More information

Course 1: Evaluating Financial Performance

Course 1: Evaluating Financial Performance Excellence in Financial Management Course 1: Evaluating Financial Performance Prepared by: Matt H. Evans, CPA, CMA, CFM This course provides a basic understanding of how to use ratio analysis for evaluating

More information

Coimisiún na Scrúduithe Stáit State Examinations Commission. Leaving Certificate 2014. Marking Scheme. Accounting. Higher Level

Coimisiún na Scrúduithe Stáit State Examinations Commission. Leaving Certificate 2014. Marking Scheme. Accounting. Higher Level Coimisiún na Scrúduithe Stáit State Examinations Commission Leaving Certificate 2014 Marking Scheme Accounting Higher Level Note to teachers and students on the use of published marking schemes Marking

More information

East India Hotels (EIH) Ltd Growing Strategically

East India Hotels (EIH) Ltd Growing Strategically East India Hotels (EIH) Ltd Growing Strategically BSE Code 500840 NSE Code EIHOTEL Bloomberg Code EIH@IN Face Value 10 CMP Rs 224 Market Cap Rs 11.7bn (as on August 27th 2004) Share Holding Pattern Others

More information

FINANCIAL ACCOUNTING TOPIC: FINANCIAL ANALYSIS

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

More information

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

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

More information

Financial Statement and Cash Flow Analysis

Financial Statement and Cash Flow Analysis Chapter 2 Financial Statement and Cash Flow Analysis Answers to Concept Review Questions 1. What role do the FASB and SEC play with regard to GAAP? The FASB is a nongovernmental, professional standards

More information

Financial ratio analysis

Financial ratio analysis Financial ratio analysis A reading prepared by Pamela Peterson Drake O U T L I N E 1. Introduction 2. Liquidity ratios 3. Profitability ratios and activity ratios 4. Financial leverage ratios 5. Shareholder

More information

Actuarial Society of India

Actuarial Society of India Actuarial Society of India EXAMINATIONS November 2004 SUBJECT - 108: Finance and Financial Reporting Indicative Solution S-108 Page 1 of 7 1 D 2 C 3 B 4 D 5 D 6 A 7 B 8 C 9 B 10 D 11 Trade credit is short-term

More information

UNIT 10 FINANCIAL STATEMENTS: ANALYSIS AND INTERPRETATION (Accounting Ratios)

UNIT 10 FINANCIAL STATEMENTS: ANALYSIS AND INTERPRETATION (Accounting Ratios) UNIT 10 FINANCIAL STATEMENTS: ANALYSIS AND INTERPRETATION UNIT 10 FINANCIAL STATEMENTS: ANALYSIS AND INTERPRETATION Financial Statements: Structure 10.0 Introduction 10.1 Unit Objectives 10.2 Relationship

More information

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

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

More information

How To Calculate Financial Leverage Ratio

How To Calculate Financial Leverage Ratio 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

More information

Chapter 2 Financial Statement and Cash Flow Analysis

Chapter 2 Financial Statement and Cash Flow Analysis Chapter 2 Financial Statement and Cash Flow Analysis MULTIPLE CHOICE 1. Which of the following items can be found on an income statement? a. Accounts receivable b. Long-term debt c. Sales d. Inventory

More information

performance of a company?

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

More information

Financial/Accounting Analysis Ratios Excel Calculator

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

More information

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.

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

More information

FINANCIAL MANAGEMENT

FINANCIAL MANAGEMENT STUDY MATERIAL:- FINANCIAL MANAGEMENT VERY SHORT QUESTIONS ( 1 MARK) 1 Define Financial Management. Ans financial management is that specialized activity which is responsible for obtaining and affectively

More information

Managerial Accounting Prof. Dr. Varadraj Bapat Department of School of Management Indian Institute of Technology, Bombay

Managerial Accounting Prof. Dr. Varadraj Bapat Department of School of Management Indian Institute of Technology, Bombay Managerial Accounting Prof. Dr. Varadraj Bapat Department of School of Management Indian Institute of Technology, Bombay Lecture - 18 Financial Statements Analysis Dabur India Case Dear students, in last

More information

FNCE 3010 (Durham). HW2 (Financial ratios)

FNCE 3010 (Durham). HW2 (Financial ratios) FNCE 3010 (Durham). HW2 (Financial ratios) 1. What effect would the following actions have on a firms net working capital and current ratio (assume NWC is positive and current ratio is initially greater

More information

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

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

More information

Chapter 9 Solutions to Problems

Chapter 9 Solutions to Problems Chapter 9 Solutions to Problems 1. a. Cash and cash equivalents are cash in hand and in banks, plus money market securities with maturities of 90 days or less. Accounts receivable are claims on customers

More information

Key Concepts and Skills. Standardized Financial. Chapter Outline. Ratio Analysis. Categories of Financial Ratios 1-1. Chapter 3

Key Concepts and Skills. Standardized Financial. Chapter Outline. Ratio Analysis. Categories of Financial Ratios 1-1. Chapter 3 Key Concepts and Skills Chapter 3 Working With Financial Statements Know how to standardize financial statements for comparison purposes Know how to compute and interpret important financial ratios Know

More information

Engineering Economics 2013/2014 MISE

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

More information

ACC 255 FINAL EXAM REVIEW PACKET (NEW MATERIAL)

ACC 255 FINAL EXAM REVIEW PACKET (NEW MATERIAL) Page 1 ACC 255 FINAL EXAM REVIEW PACKET (NEW MATERIAL) Complete these sample exam problems/objective questions and check your answers with the solutions at the end of the review file and identify where

More information

Chapter. Financial Analysis

Chapter. Financial Analysis Chapter 18 Financial Analysis Financial analysis The objective of financial statements is to provide information to all the users of these accounts to help them in their decision-making. Note that most

More information

Portfolio Management FMI Skema Paris campus Contrôle continu 2 2 April 2014 O. Williams

Portfolio Management FMI Skema Paris campus Contrôle continu 2 2 April 2014 O. Williams Portfolio Management FMI Skema Paris campus Contrôle continu 2 2 April 2014 O. Williams 1. The comparisons with which ratios should be made include the following, except: a. The firm's own past performance

More information

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 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

More information

Associated Files: Ratios worksheet

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

More information

Discussion Board Articles Ratio Analysis

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

More information

The relationship of accounting ratios in balance sheets

The relationship of accounting ratios in balance sheets The relationship of accounting ratios in balance sheets Accounting Ratios are the ratios show the relationship between accounting data in a balance sheet, profit and loss account in a particular organization.

More information

Fundamental Analysis Ratios

Fundamental Analysis Ratios Fundamental Analysis Ratios Fundamental analysis ratios are used to both measure the performance of a company relative to other companies in the same market sector and to value a company. There are three

More information

Financial Formulas. 5/2000 Chapter 3 Financial Formulas i

Financial Formulas. 5/2000 Chapter 3 Financial Formulas i Financial Formulas 3 Financial Formulas i In this chapter 1 Formulas Used in Financial Calculations 1 Statements of Changes in Financial Position (Total $) 1 Cash Flow ($ millions) 1 Statements of Changes

More information

INTERNATIONAL ACCOUNTING STANDARDS. CIE Guidance for teachers of. 7110 Principles of Accounts and. 0452 Accounting

INTERNATIONAL ACCOUNTING STANDARDS. CIE Guidance for teachers of. 7110 Principles of Accounts and. 0452 Accounting www.xtremepapers.com INTERNATIONAL ACCOUNTING STANDARDS CIE Guidance for teachers of 7110 Principles of Accounts and 0452 Accounting 1 CONTENTS Introduction...3 Use of this document... 3 Users of financial

More information

CHAPTER 2 FINANCIAL STATEMENTS AND CASH FLOW

CHAPTER 2 FINANCIAL STATEMENTS AND CASH FLOW CHAPTER 2 FINANCIAL STATEMENTS AND CASH FLOW Solutions to Questions and Problems NOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and

More information

Selecting sources of finance for business

Selecting sources of finance for business Selecting sources of finance for business by Steve Jay 08 Sep 2003 This article considers the practical issues facing a business when selecting appropriate sources of finance. It does not consider the

More information

Cash Flow Statement. IPCC Paper 1: Accounting/Financial Management Chapter 2 -Unit 2. CA. Pankaj Goel

Cash Flow Statement. IPCC Paper 1: Accounting/Financial Management Chapter 2 -Unit 2. CA. Pankaj Goel Cash Flow Statement IPCC Paper 1: Accounting/Financial Management Chapter 2 -Unit 2 1 CA. Pankaj Goel Questions that Cash Flow Statement Answers 1 Where did the cash come from? 2 3 What purpose cash used

More information

Profit attributable to: Owners of the parent 116,500 Non-controlling interest (w (ii)) 15,200 131,700

Profit attributable to: Owners of the parent 116,500 Non-controlling interest (w (ii)) 15,200 131,700 Answers Fundamentals Level Skills Module, Paper F7 (INT) Financial Reporting (International) June 2014 Answers 1 (a) Penketh Consolidated goodwill as at 1 October 2013 Controlling interest Share exchange

More information

MASTER BUDGET - EXAMPLE

MASTER BUDGET - EXAMPLE MASTER BUDGET - EXAMPLE Sales IN UNITS for the previous two months (of last quarter), as well as the sales forecast for next quarter are as follows: Sales Budget Units May sales (ACTUAL) 20 June sales

More information

Understanding Financial Information for Bankruptcy Lawyers Understanding Financial Statements

Understanding Financial Information for Bankruptcy Lawyers Understanding Financial Statements Understanding Financial Information for Bankruptcy Lawyers Understanding Financial Statements In the United States, businesses generally present financial information in the form of financial statements

More information

Business Plan. In completing the following proposal provide as much detailed information as possible.

Business Plan. In completing the following proposal provide as much detailed information as possible. Business Plan A business plan is an integral part of a financing request. It is an introduction to your business, and it provides us with the initial information that we require to start to an application.

More information

9901_1. A. 74.19 days B. 151.21 days C. 138.46 days D. 121.07 days E. 84.76 days

9901_1. A. 74.19 days B. 151.21 days C. 138.46 days D. 121.07 days E. 84.76 days 1. A stakeholder is: 9901_1 Student: A. a creditor to whom a firm currently owes money. B. any person who has voting rights based on stock ownership of a corporation. C. any person or entity other than

More information

Often stock is split to lower the price per share so it is more accessible to investors. The stock split is not taxable.

Often stock is split to lower the price per share so it is more accessible to investors. The stock split is not taxable. Reading: Chapter 8 Chapter 8. Stock: Introduction 1. Rights of stockholders 2. Cash dividends 3. Stock dividends 4. The stock split 5. Stock repurchases and liquidations 6. Preferred stock 7. Analysis

More information

Consolidated Financial Results for Fiscal Year 2013 (April 1, 2013 March 31, 2014)

Consolidated Financial Results for Fiscal Year 2013 (April 1, 2013 March 31, 2014) Consolidated Financial Results for Fiscal Year 2013 (April 1, 2013 March 31, 2014) 28/4/2014 Name of registrant: ShinMaywa Industries, Ltd. Stock Exchange Listed: Tokyo Code number: 7224 (URL: http://www.shinmaywa.co.jp

More information

Financial Modeling & Corporate Valuations

Financial Modeling & Corporate Valuations Financial Modeling & Corporate Valuations Presented by Affan Sajjad ACA Cell # 03219400788 Presenter Profile Passed CA exams in December 2004 Became Associate Member of ICAP in November 2005 Completed

More information

Do you need a Module Chapter to Read Lecture to View Problem Assignment Calculator for the Test? 1 1 1 None No. 2 2 2 Problems from Ch.

Do you need a Module Chapter to Read Lecture to View Problem Assignment Calculator for the Test? 1 1 1 None No. 2 2 2 Problems from Ch. Syllabus Financial Statement Analysis 1 Purpose and Learning Objectives This is an introductory course in financial (accounting) statements and their analysis. It reviews the basic financial statements,

More information

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

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

More information

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 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

More information

Teacher Resource Bank

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

More information

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

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

More information

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

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

More information

Financial Management Practices

Financial Management Practices RK. Jain Shveta Singh Surendra Singh Yadav Financial Management Practices An Empirical Study of Indian Corporates QA Springer Part I Background 1 Introduction 3 Objectives 4 Rationale 5 Research Methodology

More information

Advanced Placement (AP) Accounting Course & Exam Pilot Program Course Outline, Learning Objectives and Student Outcomes

Advanced Placement (AP) Accounting Course & Exam Pilot Program Course Outline, Learning Objectives and Student Outcomes Advanced Placement (AP) Accounting Course & Exam Pilot Program Course Outline, Learning Objectives and Student Outcomes Course Overview The Advanced Placement (AP) Accounting Course & Exam Pilot Program

More information

Ratio Analysis By transforming dollar figures into ratios, they may be compared to ratios of past periods, ratios of other firms or to industry norms.

Ratio Analysis By transforming dollar figures into ratios, they may be compared to ratios of past periods, ratios of other firms or to industry norms. Chapter Four Financial analysis and Planning, Control and Analysis The CONCEPT : So why divide? Dividends (Return) Company A: $15.00 Company B: $21,000.38 Company C: $73,400.00 The CONCEPT : Why divide?

More information

CA CPT SAMPLE PAPER FUNDAMENTAL ACCOUNTING (60MARKS)

CA CPT SAMPLE PAPER FUNDAMENTAL ACCOUNTING (60MARKS) CA CPT SAMPLE PAPER FUNDAMENTAL ACCOUNTING (60MARKS) 1. Which of the following provide frame work and accounting policies so that the financial statements of different enterprises become comparable? (a)

More information

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

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,

More information

Financial Statements Tutorial

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

More information

ACCOUNTING FOR NON-ACCOUNTANTS

ACCOUNTING FOR NON-ACCOUNTANTS Deutsch and Chikarovski's ACCOUNTING FOR NON-ACCOUNTANTS A Question and Answer Handbook Robert Deutsch and Kris Chikarovski THE FEDERATION PRESS 2012 Preface - x Who is this book for? x What is in this

More information

Chapter-3 Solutions to Problems

Chapter-3 Solutions to Problems Chapter-3 Solutions to Problems P3-1. P3-2. Reviewing basic financial statements LG 1; Basic Income statement: In this one-year summary of the firm s operations, Technica, Inc. showed a net profit for

More information

STATEMENT OF CASH FLOWS AND WORKING CAPITAL ANALYSIS

STATEMENT OF CASH FLOWS AND WORKING CAPITAL ANALYSIS C H A P T E R 1 0 STATEMENT OF CASH FLOWS AND WORKING CAPITAL ANALYSIS I N T R O D U C T I O N Historically, profit-oriented businesses have used the accrual basis of accounting in which the income statement,

More information

Chapter. Statement of Cash Flows For Single Company

Chapter. Statement of Cash Flows For Single Company Chapter 4 Statement of Cash Flows For Single Company 4.1 Single company statement of cash flows Statement of cash flows are primary financial statements and are required along side the income statement

More information

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

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

More information

Planning & Financing of Working Capital

Planning & Financing of Working Capital Planning & Financing of Working Capital Objectives of Working Capital Elements of Working Capital Sources of Working Capital Working Capital Control and Banking Policy Tondon Committees Recommendations

More information