Financial Analysis 2018-2019
40 Questions
0 Views

Financial Analysis 2018-2019

Created by
@HardierEnlightenment

Podcast Beta

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What was the percentage change in Current Assets from 2018 to 2019?

  • 33.90% (correct)
  • 20.00%
  • 18.80%
  • 25.40%

    • Which asset category experienced the highest percentage decrease?

  • Cash and Bank (correct)
  • Other Current Assets
  • Debtors
  • Inventory

    • What was the total value of fixed assets in 2019?

  • 54,000 LKR
  • 200,800 LKR (correct)
  • 166,800 LKR
  • 121,800 LKR

    • Which category showed an increase in value from 2018 to 2019?

    <p>Long Term Investment</p> Signup and view all the answers

    What is the total difference in liabilities from 2018 to 2019?

    <p>62,500 LKR increase</p> Signup and view all the answers

    What was the increase in Owner's Equity between 2018 and 2019?

    <p>48,400 LKR</p> Signup and view all the answers

    How much did the total assets increase from 2018 to 2019?

    <p>46,400 LKR</p> Signup and view all the answers

    What percentage change did Plant and Machinery experience?

    <p>-146.02%</p> Signup and view all the answers

    What percentage of total debtors are owed by accounts that are overdue for more than 60 days?

    <p>5.0%</p> Signup and view all the answers

    What is the formula to calculate the assets turnover ratio?

    <p>Sales / Total Assets</p> Signup and view all the answers

    Which of the following statements about fixed assets turnover is correct?

    <p>It indicates how well a company generates sales from its fixed assets.</p> Signup and view all the answers

    What does the outstanding period of 0-25 days indicate about the debtors?

    <p>They contribute to 50% of the total debtors.</p> Signup and view all the answers

    Which of the following ratios would indicate the efficiency of a firm in managing its current assets?

    <p>Current assets turnover</p> Signup and view all the answers

    If a firm has total sales of $500,000 and net fixed assets of $100,000, what would be its fixed assets turnover?

    <p>$2.50</p> Signup and view all the answers

    What is indicated by a high total assets turnover ratio?

    <p>High efficiency in utilizing total assets</p> Signup and view all the answers

    How can the net current assets turnover ratio be expressed mathematically?

    <p>Sales / Net Current Assets</p> Signup and view all the answers

    How is the Debt-Equity ratio calculated?

    <p>Total debt divided by net worth</p> Signup and view all the answers

    Which ratio expresses the relationship between capital employed and net worth?

    <p>Capital employed to Net Worth Ratio</p> Signup and view all the answers

    What does a high Interest Coverage ratio indicate?

    <p>Strong debt servicing capacity</p> Signup and view all the answers

    Which formula represents the relationship between Capital Employed and Debt-Equity ratio?

    <p>CE/NW = 1 + TD/NW</p> Signup and view all the answers

    Which of the following ratios tests a firm's ability to fulfill interest and fixed charge obligations?

    <p>Coverage ratio</p> Signup and view all the answers

    What is the net worth of a business with LKR 50 million in assets and LKR 20 million in debt?

    <p>LKR 30 million</p> Signup and view all the answers

    Which term is used to describe the efficiency of turning current assets into sales?

    <p>Activity ratio</p> Signup and view all the answers

    What is the Interest Coverage formula based on the mentioned financial data?

    <p>EBIT / Interest Charges</p> Signup and view all the answers

    What is the formula for calculating the Gross Profit Margin?

    <p>(Sales - Cost of Goods Sold) / Sales</p> Signup and view all the answers

    Which profitability ratio measures the relationship between net profit and sales?

    <p>Net Profit Margin</p> Signup and view all the answers

    What is included in the calculation of Net Profit for the Net Profit Margin?

    <p>Gross profit minus operating expenses, interest, and taxes</p> Signup and view all the answers

    What does the Operating Expense Ratio explain regarding profit margin?

    <p>Changes in profit margin from EBIT to sales ratio</p> Signup and view all the answers

    Which of the following components is necessary to calculate the Net Profit Margin?

    <p>Sales revenue and profit after tax</p> Signup and view all the answers

    Which of these ratios provides insights about a firm's capability to handle adverse economic conditions?

    <p>Net Profit Margin</p> Signup and view all the answers

    How can the Net Profit Margin also be expressed considering tax effects?

    <p>EBIT (1-T) / Sales</p> Signup and view all the answers

    What impact does debt have on the Net Profit Margin through the interest tax shield?

    <p>It enhances overall profit by reducing tax liability</p> Signup and view all the answers

    What is a potential issue when comparing financial ratios over time?

    <p>The ratios may be calculated using different methods in the past.</p> Signup and view all the answers

    Why might comparing financial ratios between companies be misleading?

    <p>They often have different accounting policies.</p> Signup and view all the answers

    Which of the following factors could affect the interpretation of ratio results?

    <p>Changes in operational structure.</p> Signup and view all the answers

    What does the point-in-time nature of certain ratios imply?

    <p>They reflect only the last day of the reporting period.</p> Signup and view all the answers

    Why is it important to consider business conditions when conducting a ratio analysis?

    <p>Conditions can influence the relevance of ratio results.</p> Signup and view all the answers

    What is a significant limitation of ratio analysis?

    <p>Difficulties in interpreting the results.</p> Signup and view all the answers

    Which scenario might lead to a misleading conclusion when analyzing financial ratios?

    <p>Comparing results from companies with different strategic goals.</p> Signup and view all the answers

    How might an unusual spike in account balance affect ratio analysis?

    <p>It can skew the outcome of the ratios.</p> Signup and view all the answers

    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.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    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.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser