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Accountancy XII 17/9/2020 Flashcards | StudBud
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Accountancy XII 17/9/2020
Accountancy XII 17/9/2020
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Horizontal, Vertical and Trend Analysis
Flashcards
12 cards
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Questions
12
Answers
1
When preforming vertical analysis, the
base amount
for operating expenses is normally,
The current year’s net sales
The current year’s net purchases
The previous year’s net sales
Accrued expenses for the current year
2
Vertical analysis facilitates comparison of
BS to CF statement
Different accounting periods for the same company
An entity's profit figure to industry benchmarks
Different size companies in the same industry
3
Profitability ratios
inform users,
on how management are managing their assets
of an entity's ability to meet its short-term commitments
of returns and risks associated with investment decisions
of an entity’s ability to meet long term financing decisions
4
The comparison of net sales with net profit is known as
Profit Margin
Sales Margin
Net Receivables Margin
Cost of Goods Sold Margin
5
Cash and net receivables are included in the
quick asset ratio
because they are,
Considered current assets
Highly liquid
Not readily saleable
Included in the non current assets on the balance sheet
6
Which of the following is not a liquidity ratio?
Cash Flow Ratio
Earnings Per Share
Quick Asset Ratio
Current Ratio
7
One example of a financial
ratio which measures earning capacity
of an entity is the:
Current ratio
Equity ratio
Net Profit Ratio
Turnover of Inventories
8
Accountants use three main types of analysis of financial reports
Ratios, trend and percentages
Ratios, trend and comparison
Horizontal, Vertical and Trend
Comparison, Horizontal and Vertical
9
What does the
current ratio
indicate?
An entity’s ability to satisfy obligations in the short term
The amount of current assets that an entity has
How profitable an entity will be
Amount of total funds an entity has to meet obligations
10
What does
trend analysis
involve?
Analysing trends in price movements within the current year
Comparing trends in the market that will affect an entity
Predicting future directions of various financial items
Comparing expense items to revenue within accounting period
11
Limitations of financial report ratios
do not include
that,
They may reflect extraordinary data during accounting period
The financial data are often historical in nature
There may be a lack of data that the user is looking for
Lack of objectivity may cause incorrect calculations
12
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
Using figures from previous years
Relying on absolute values in the financial reports
