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Duplicate of Financial Statement Analysis
Duplicate of Financial Statement Analysis
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Horizontal, Vertical and Trend Analysis
Flashcards
12 cards
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Questions
12
Answers
1
What does the
current ratio
indicate?
How profitable an entity will be
Amount of total funds an entity has to meet obligations
The amount of current assets that an entity has
An entity’s ability to satisfy obligations in the short term
2
Cash and net receivables are included in the
quick asset ratio
because they are,
Considered current assets
Not readily saleable
Included in the non current assets on the balance sheet
Highly liquid
3
What does
trend analysis
involve?
Predicting future directions of various financial items
Analysing trends in price movements within the current year
Comparing expense items to revenue within accounting period
Comparing trends in the market that will affect an entity
4
Profitability ratios
inform users,
on how management are managing their assets
of an entity’s ability to meet long term financing decisions
of returns and risks associated with investment decisions
of an entity's ability to meet its short-term commitments
5
Vertical analysis facilitates comparison of
Different accounting periods for the same company
An entity's profit figure to industry benchmarks
Different size companies in the same industry
BS to CF statement
6
When preforming vertical analysis, the
base amount
for operating expenses is normally,
The current year’s net sales
Accrued expenses for the current year
The previous year’s net sales
The current year’s net purchases
7
Which of the following is
not
meaningful
when analysing financial reports?
Using other figures within the financial report
Relying on relative values in financial reports
Relying on absolute values in the financial reports
Using figures from previous years
8
Which of the following is not a liquidity ratio?
Earnings Per Share
Cash Flow Ratio
Quick Asset Ratio
Current Ratio
9
The comparison of net sales with net profit is known as
Cost of Goods Sold Margin
Sales Margin
Net Receivables Margin
Profit Margin
10
Accountants use three main types of analysis of financial reports
Ratios, trend and percentages
Horizontal, Vertical and Trend
Comparison, Horizontal and Vertical
Ratios, trend and comparison
11
One example of a financial
ratio which measures earning capacity
of an entity is the:
Net Profit Ratio
Turnover of Inventories
Equity ratio
Current ratio
12
Limitations of financial report ratios
do not include
that,
There may be a lack of data that the user is looking for
The financial data are often historical in nature
Lack of objectivity may cause incorrect calculations
They may reflect extraordinary data during accounting period
