Interpreting Financial Statements

Gemma Doney
Flashcards by Gemma Doney, updated more than 1 year ago
Gemma Doney
Created by Gemma Doney almost 5 years ago
16
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Level 4 AAT Flashcards on Interpreting Financial Statements, created by Gemma Doney on 10/07/2015.

Resource summary

Question Answer
Interpreting Financial Statements Liquidity Profitability Financial Position Use of Resources
Interpreting Financial Statements Liquidity Current Ratio Current Assets _______________ = X : 1 Current Liabilities Measures relationship between current assets and current liabilities
Interpreting Financial Statements Liquidity Quick Ratio or "Acid Test Ratio" Current Assets-Inventories ________________________ = X : 1 Current Liabilities Test of immediate solvency- gives clear indication of health of a companies finance
Interpreting Financial Statements Financial Position Interest Cover Profit from Operations _____________________ = X Times Finance Costs Assesses the safety margin cover of profit over its finance costs
Interpreting Financial Statements Financial Position Gearing N-C Liabilities ________________________ X100 Total Equity + N-C Liabilities Ratio looks at whether company can pay its way in short term Looks at companies long term stability
Interpreting Financial Statements Profitability Return on Capital Employed (ROCE) Profit from Operations __________________________ X 100 Total Equity + N-C Liabilities Expresses the profit in relation to capita; employed (Most effective ratio when interpreting accounts)
Interpreting Financial Statements Profitability Return on Total Assets Profit from Operations __________________ X 100 Total Assets
Interpreting Financial Statements Profitability Return on Equity Profit after Tax _______________ X 100 Total Equity
Interpreting Financial Statements Profitability Gross Profit Percentage Revenue - Cost of Sales _____________________ X 100 Revenue Expresses gross profit margin as % in relation to revenue
Interpreting Financial Statements Profitability Expense / Revenue % Specified Expense ___________________ X 100 Revenue Expense expressed as a % over revenue (compared year on year)
Interpreting Financial Statements Profitability Operating Profit % Profit from operations _______________________ X 100 Revenue (Operating Profit- profit before finance costs and tax)
Interpreting Financial Statements Use of Resources Inventory Turnover Cost of Sales ____________ = X Times Inventories Shows number of times in a year inventory is turned over
Interpreting Financial Statements Use of Resources Inventory Holding Period Inventories __________ x 365 Days = X Days Cost of Sales Shows number of days inventories are held on average
Interpreting Financial Statements Use of Resources Trade Receivables Collection Period Trade Receivables _____________ x 365 = Days Revenue Shows how many times on average trade receivables take to pay for goods sold by the company
Interpreting Financial Statements Use of Resources Trade Payables Payment Period Trade Payables ______________ x365 = Days Cost of Sales Measuring days takes to pay trade payables
Interpreting Financial Statements Use of Resources Working Capital Cycle Inventory Days + Receivable Days - Payable Days Measures time between payment of good received inventory and collection of cash from customers from goods sale
Interpreting Financial Statements Use of Resources Asset Turnover (Total Assets) Revenue _____________ = X Times Total Assets Show efficiency in use of assets in generating revenue
Interpreting Financial Statements Use of Resources Assets Turnover (Net Assets) Revenue _________________ = X Times TotalAssets - CurrentLiabilities Show efficiency in use of Net assets in generating revenue
Interpreting Financial Statements Use of Resources Assets Turnover (N- C Assets) Revenue _____________ = X Times N-C Assets Show efficiency in use of N-C Assets in generating revenue
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