Podcast
Questions and Answers
What was the percentage change in Current Assets from 2018 to 2019?
What was the percentage change in Current Assets from 2018 to 2019?
Which asset category experienced the highest percentage decrease?
Which asset category experienced the highest percentage decrease?
What was the total value of fixed assets in 2019?
What was the total value of fixed assets in 2019?
Which category showed an increase in value from 2018 to 2019?
Which category showed an increase in value from 2018 to 2019?
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What is the total difference in liabilities from 2018 to 2019?
What is the total difference in liabilities from 2018 to 2019?
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What was the increase in Owner's Equity between 2018 and 2019?
What was the increase in Owner's Equity between 2018 and 2019?
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How much did the total assets increase from 2018 to 2019?
How much did the total assets increase from 2018 to 2019?
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What percentage change did Plant and Machinery experience?
What percentage change did Plant and Machinery experience?
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What percentage of total debtors are owed by accounts that are overdue for more than 60 days?
What percentage of total debtors are owed by accounts that are overdue for more than 60 days?
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What is the formula to calculate the assets turnover ratio?
What is the formula to calculate the assets turnover ratio?
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Which of the following statements about fixed assets turnover is correct?
Which of the following statements about fixed assets turnover is correct?
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What does the outstanding period of 0-25 days indicate about the debtors?
What does the outstanding period of 0-25 days indicate about the debtors?
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Which of the following ratios would indicate the efficiency of a firm in managing its current assets?
Which of the following ratios would indicate the efficiency of a firm in managing its current assets?
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If a firm has total sales of $500,000 and net fixed assets of $100,000, what would be its fixed assets turnover?
If a firm has total sales of $500,000 and net fixed assets of $100,000, what would be its fixed assets turnover?
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What is indicated by a high total assets turnover ratio?
What is indicated by a high total assets turnover ratio?
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How can the net current assets turnover ratio be expressed mathematically?
How can the net current assets turnover ratio be expressed mathematically?
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How is the Debt-Equity ratio calculated?
How is the Debt-Equity ratio calculated?
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Which ratio expresses the relationship between capital employed and net worth?
Which ratio expresses the relationship between capital employed and net worth?
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What does a high Interest Coverage ratio indicate?
What does a high Interest Coverage ratio indicate?
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Which formula represents the relationship between Capital Employed and Debt-Equity ratio?
Which formula represents the relationship between Capital Employed and Debt-Equity ratio?
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Which of the following ratios tests a firm's ability to fulfill interest and fixed charge obligations?
Which of the following ratios tests a firm's ability to fulfill interest and fixed charge obligations?
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What is the net worth of a business with LKR 50 million in assets and LKR 20 million in debt?
What is the net worth of a business with LKR 50 million in assets and LKR 20 million in debt?
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Which term is used to describe the efficiency of turning current assets into sales?
Which term is used to describe the efficiency of turning current assets into sales?
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What is the Interest Coverage formula based on the mentioned financial data?
What is the Interest Coverage formula based on the mentioned financial data?
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What is the formula for calculating the Gross Profit Margin?
What is the formula for calculating the Gross Profit Margin?
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Which profitability ratio measures the relationship between net profit and sales?
Which profitability ratio measures the relationship between net profit and sales?
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What is included in the calculation of Net Profit for the Net Profit Margin?
What is included in the calculation of Net Profit for the Net Profit Margin?
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What does the Operating Expense Ratio explain regarding profit margin?
What does the Operating Expense Ratio explain regarding profit margin?
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Which of the following components is necessary to calculate the Net Profit Margin?
Which of the following components is necessary to calculate the Net Profit Margin?
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Which of these ratios provides insights about a firm's capability to handle adverse economic conditions?
Which of these ratios provides insights about a firm's capability to handle adverse economic conditions?
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How can the Net Profit Margin also be expressed considering tax effects?
How can the Net Profit Margin also be expressed considering tax effects?
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What impact does debt have on the Net Profit Margin through the interest tax shield?
What impact does debt have on the Net Profit Margin through the interest tax shield?
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What is a potential issue when comparing financial ratios over time?
What is a potential issue when comparing financial ratios over time?
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Why might comparing financial ratios between companies be misleading?
Why might comparing financial ratios between companies be misleading?
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Which of the following factors could affect the interpretation of ratio results?
Which of the following factors could affect the interpretation of ratio results?
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What does the point-in-time nature of certain ratios imply?
What does the point-in-time nature of certain ratios imply?
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Why is it important to consider business conditions when conducting a ratio analysis?
Why is it important to consider business conditions when conducting a ratio analysis?
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What is a significant limitation of ratio analysis?
What is a significant limitation of ratio analysis?
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Which scenario might lead to a misleading conclusion when analyzing financial ratios?
Which scenario might lead to a misleading conclusion when analyzing financial ratios?
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How might an unusual spike in account balance affect ratio analysis?
How might an unusual spike in account balance affect ratio analysis?
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Study Notes
Financial Overview
- Comparison of financial data between 2018 and 2019 shows a significant decline in current assets, from LKR 103,800 to 68,000.
- Cash and Bank decreased by LKR 21,600, representing a 91.50% drop.
- Inventory and Debtors also saw declines of 18.80% and 9.10% respectively.
- Fixed Assets experienced mixed results; while Land and Building decreased by 37%, Plant and Machinery increased dramatically by 146.02%.
Total Assets and Liabilities
- Total assets rose from LKR 234,800 to 281,200, an increase of 19.80%.
- Current Liabilities dropped by 51.50%, while Long-Term Debt climbed by 62.50%.
- Owner's Equity increased significantly, with Equity Share Capital rising by 50% and Reserves and Surplus increasing by 13.50%.
Trend Analysis
- Trend analysis involves computing percentage relationships in financial statements to identify upward or downward trends.
- Calculates relative changes over periods, providing a better understanding of financial health through ratios.
- Debt-Equity (DE) ratio is computed as Total Debt divided by Net Worth to evaluate financial leverage.
- Capital employed to Net Worth Ratio indicates contributions from both lenders and equity holders.
Other Debt and Coverage Ratios
- Total Liabilities to Total Assets ratio assesses the extent to which total assets are funded through liabilities.
- The Interest Coverage Ratio, calculated by EBIT divided by interest charges, evaluates the company's ability to service debt.
Activity Ratios
- Activity ratios measure the efficiency of utilizing current assets and liabilities.
- Key activity ratios include:
- Inventory Turnover: Assesses efficiency in managing inventory.
- Assets Turnover: Indicates effectiveness in generating sales from assets.
- Working Capital Turnover: Measures the turnover efficiency of net current assets.
Profitability Ratios
- Profitability ratios gauge a firm’s ability to generate profit over time.
- Gross Profit Margin: Calculated as (Sales - Cost of Goods Sold) / Sales, indicating profitability relative to sales.
- Net Profit Margin: Profit after tax divided by sales, showing management efficiency in profit generation.
- Operating Expense Ratio: Analyzes the impact of operational expenses on profit margins.
Important Considerations for Ratio Analysis
- Variability in accounting policies can affect comparability across firms.
- The context of the business environment and company strategies are crucial for interpreting ratio results.
- Fluctuations in account balances as of the reporting date should be taken into account for accurate assessment.
Summary of Financial Statement Analysis
- Financial Statement Analysis aims to express the financial performance of a business through ratios.
- Various types of analyses including trend analysis, ratio analysis, and profitability measures help yield insights into a company's financial health.
- Ratios have distinct advantages but also limitations, requiring careful interpretation in context.
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Description
This quiz focuses on analyzing the changes in current assets of a company between 2018 and 2019. Participants will evaluate the changes in cash, debtors, and inventory, along with their percentage changes. It's an essential exercise for understanding financial statements and asset management.
