Finance Discovery Day
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Questions and Answers

What is the definition of "earned premium"?

  • The total amount of premium collected over a year
  • The portion of the premium that has been recognized as revenue over the coverage period (correct)
  • The amount of premium refunded to policy holders
  • The premium amount minus commissions

How is earned premium calculated for a specific period?

  • Total collected premium minus claims paid
  • Total written premium divided by the number of policies
  • Total written premium multiplied by time period
  • Total written premium minus unearned premium at the end of the period (correct)

What is the primary purpose of IFRS17

  • To provide guidelines for tax reporting
  • To standardize insurance contract accounting across the insurance industry (correct)
  • To set rules for premium collection
  • To regulate commission rates

Under IFRS17, how should insurance companies recognize revenue?

<p>Over the coverage period on insurance contracts (C)</p> Signup and view all the answers

Which factor does not affect the commission rate for insurance agents?

<p>Number of claims paid to policyholder (C)</p> Signup and view all the answers

Which of the following best describes "underwriting profit"?

<p>Total earned premiums minus commissions, claims and operating expenses (B)</p> Signup and view all the answers

What does the term "loss ratio" refer to in insurance?

<p>The ratio of total claims incurred to total earned premiums (A)</p> Signup and view all the answers

Which of the following is an asset on an insurance company's balance sheet?

<p>Premium receivables (C)</p> Signup and view all the answers

What is the main purpose of a company's income statement?

<p>To report a company's revenues and expenses (A)</p> Signup and view all the answers

What is a type of financial ratio that measures an insurance company's measure of profitability?

<p>Combined Ratio (B)</p> Signup and view all the answers

Study Notes

Financial Analysis

Definition

Financial analysis is the process of evaluating a company's financial performance and position to make informed business decisions.

Objectives

  • To evaluate a company's financial health and performance
  • To identify areas for improvement and opportunities for growth
  • To make informed investment decisions
  • To assess a company's ability to meet its financial obligations

Types of Financial Analysis

  • Horizontal Analysis: compares line items on a company's financial statements over time to identify trends and changes
  • Vertical Analysis: expresses each line item on a financial statement as a percentage of a base item, such as total revenue or total assets
  • Ratio Analysis: calculates financial ratios to evaluate a company's performance and position
  • Trend Analysis: examines a company's financial performance over time to identify patterns and trends

Financial Statement Analysis

  • Balance Sheet: provides a snapshot of a company's financial position at a specific point in time
    • Assets: resources owned or controlled by the company
    • Liabilities: debts or obligations owed by the company
    • Equity: ownership interest in the company
  • Income Statement: reports a company's revenues and expenses over a specific period of time
    • Revenues: income generated from sales or other activities
    • Expenses: costs incurred to generate revenues
    • Net Income: profit earned by the company
  • Cash Flow Statement: reports a company's inflows and outflows of cash over a specific period of time
    • Cash from Operations: cash generated from a company's core business activities
    • Cash from Investing: cash spent on investments or acquisitions
    • Cash from Financing: cash raised from debt or equity financing

Financial Ratios

  • Liquidity Ratios: measure a company's ability to pay its short-term debts
    • Current Ratio: current assets / current liabilities
    • Quick Ratio: (current assets - inventory) / current liabilities
  • Profitability Ratios: measure a company's ability to generate earnings
    • Gross Margin Ratio: (revenue - cost of goods sold) / revenue
    • Return on Equity (ROE): net income / total equity
  • Efficiency Ratios: measure a company's ability to use its assets efficiently
    • Asset Turnover Ratio: revenue / total assets
    • Inventory Turnover Ratio: cost of goods sold / average inventory

Limitations of Financial Analysis

  • Assumes Accurate Financial Data: financial analysis relies on accurate and reliable financial data
  • Ignores Non-Financial Factors: financial analysis may not consider non-financial factors, such as management quality or industry trends
  • Limited to Historical Data: financial analysis is based on historical data and may not reflect future performance or changes in the business environment

Financial Analysis

Definition

  • Evaluates a company's financial performance and position to make informed business decisions

Objectives

  • Evaluate a company's financial health and performance
  • Identify areas for improvement and opportunities for growth
  • Make informed investment decisions
  • Assess a company's ability to meet its financial obligations

Types of Financial Analysis

  • Horizontal Analysis: compares line items on a company's financial statements over time to identify trends and changes
  • Vertical Analysis: expresses each line item on a financial statement as a percentage of a base item
  • Ratio Analysis: calculates financial ratios to evaluate a company's performance and position
  • Trend Analysis: examines a company's financial performance over time to identify patterns and trends

Financial Statement Analysis

Balance Sheet

  • Provides a snapshot of a company's financial position at a specific point in time
  • Assets: resources owned or controlled by the company
  • Liabilities: debts or obligations owed by the company
  • Equity: ownership interest in the company

Income Statement

  • Reports a company's revenues and expenses over a specific period of time
  • Revenues: income generated from sales or other activities
  • Expenses: costs incurred to generate revenues
  • Net Income: profit earned by the company

Cash Flow Statement

  • Reports a company's inflows and outflows of cash over a specific period of time
  • Cash from Operations: cash generated from a company's core business activities
  • Cash from Investing: cash spent on investments or acquisitions
  • Cash from Financing: cash raised from debt or equity financing

Financial Ratios

Liquidity Ratios

  • Measure a company's ability to pay its short-term debts
  • Current Ratio: current assets / current liabilities
  • Quick Ratio: (current assets - inventory) / current liabilities

Profitability Ratios

  • Measure a company's ability to generate earnings
  • Gross Margin Ratio: (revenue - cost of goods sold) / revenue
  • Return on Equity (ROE): net income / total equity

Efficiency Ratios

  • Measure a company's ability to use its assets efficiently
  • Asset Turnover Ratio: revenue / total assets
  • Inventory Turnover Ratio: cost of goods sold / average inventory

Limitations of Financial Analysis

  • Assumes Accurate Financial Data: financial analysis relies on accurate and reliable financial data
  • Ignores Non-Financial Factors: financial analysis may not consider non-financial factors
  • Limited to Historical Data: financial analysis is based on historical data and may not reflect future performance or changes in the business environment

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