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Questions and Answers
What is the definition of "earned premium"?
What is the definition of "earned premium"?
How is earned premium calculated for a specific period?
How is earned premium calculated for a specific period?
What is the primary purpose of IFRS17
What is the primary purpose of IFRS17
Under IFRS17, how should insurance companies recognize revenue?
Under IFRS17, how should insurance companies recognize revenue?
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Which factor does not affect the commission rate for insurance agents?
Which factor does not affect the commission rate for insurance agents?
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Which of the following best describes "underwriting profit"?
Which of the following best describes "underwriting profit"?
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What does the term "loss ratio" refer to in insurance?
What does the term "loss ratio" refer to in insurance?
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Which of the following is an asset on an insurance company's balance sheet?
Which of the following is an asset on an insurance company's balance sheet?
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What is the main purpose of a company's income statement?
What is the main purpose of a company's income statement?
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What is a type of financial ratio that measures an insurance company's measure of profitability?
What is a type of financial ratio that measures an insurance company's measure of profitability?
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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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