FS 3 difficile aperto

The direct method can still be used to prepare a Cash Flow Statement without the input of the cash account by deriving Cash Receipts from Customers and Cash Payments to Suppliers from the Income Statement and two Balance Sheets.

The components of cash flows from operations using the direct method are: Cash receipts from customers, Cash disbursements to suppliers, Cash disbursements on operating expenses, and Cash disbursements to tax authority.

Cash Receipts from Customers are derived by adding the sales of the current period to the beginning period Accounts Receivable and subtracting the end of period Accounts Receivable.

<p>Cash Payments to Suppliers are derived by adding the purchases of the current period to the beginning period Accounts Payable and subtracting the end of period Accounts Payable.</p> Signup and view all the answers

<p>The formula for deriving Cash Disbursements on Operating Expenses is: General expenses - beginning period Prepaid Expenses + beginning period Expenses Payable - ending Prepaid Expenses + ending Expenses Payable.</p> Signup and view all the answers

<p>Cash Disbursements to Tax Authority can be calculated by adding the Property Taxes of the current period to the beginning period Property Taxes Payable and subtracting the end of period Property Taxes Payable.</p> Signup and view all the answers

<p>The main difference between the direct method and indirect method of preparing a Cash Flow Statement lies in how cash flows from operating activities are calculated. The direct method calculates cash flows using actual cash receipts and payments, while the indirect method starts with net income and adjusts for non-cash items.</p> Signup and view all the answers

<p>The Income Statement uses total revenue as the base, while the Balance Sheet uses total assets as the base for financial analysis.</p> Signup and view all the answers

<p>The purpose of preparing common-size financial statements is to facilitate comparisons by reporting only percentages, without dollar amounts.</p> Signup and view all the answers

<p>Benchmarking involves comparing a company to standards set by others in the same industry or market to drive improvement in financial performance.</p> Signup and view all the answers

<p>The major categories of financial ratios used in financial ratio analysis include efficiency, financial strength, profitability, and investment ratios.</p> Signup and view all the answers

<p>Consistent calculation of financial ratios adds value to financial statement analysis, even with slight differences in classifications and formulas.</p> Signup and view all the answers

<p>The inventory turnover ratio measures the number of times a company sells its average inventory during a year, indicating ease or difficulty in selling inventory.</p> Signup and view all the answers

<p>The receivable turnover ratio is computed by dividing net sales by average net accounts receivable, and it measures the ability to collect cash from customers.</p> Signup and view all the answers

<p>The formula for horizontal analysis calculation involves computing the amount of change from the base period to the next and then dividing the change by the base-period amount.</p> Signup and view all the answers

<p>Nestlé's horizontal analysis shows a 0.77% increase in net sales and a 6.08% increase in operating profit in 2016 compared to 2015.</p> Signup and view all the answers

<p>Horizontal analysis provides a basis for understanding financial statement movements but does not explain the reasons behind specific changes.</p> Signup and view all the answers

<p>It is essential to study the notes to the financial statements to assess the likelihood of 2016 amounts repeating in the future.</p> Signup and view all the answers

<p>Trend analysis, a form of horizontal analysis, indicates the direction a business is taking by setting a base year's amounts equal to 100% and expressing subsequent years' amounts as a percentage of the base amount.</p> Signup and view all the answers

<p>Vertical analysis, also known as component analysis, expresses financial statement items as a percentage of the total, which is represented as 100%.</p> Signup and view all the answers

<p>These financial statement analysis techniques, horizontal, trend, and vertical analyses, offer a fundamental understanding of financial statement movements and are crucial for investors and analysts.</p> Signup and view all the answers

<p>The current ratio measures the ability to pay current liabilities with current assets. It is calculated as $\frac{\text{current assets}}{\text{current liabilities}}$.</p> Signup and view all the answers

<p>The quick ratio, or acid-test ratio, assesses whether a business can pay all current liabilities immediately and uses a narrower base than the current ratio.</p> Signup and view all the answers

<p>The debt ratio shows the proportion of assets financed with debt. A ratio of 1 indicates all assets are financed with debt, and 0.50 means half the assets are financed with debt.</p> Signup and view all the answers

<p>The times-interest-earned ratio is calculated as $\frac{\text{operating income}}{\text{interest expense}}$. It measures the number of times operating income can cover interest expense, with a high ratio indicating ease in paying interest.</p> Signup and view all the answers

<p>Profitability ratios show the percentage of each sales dollar earned as gross, operating, and net profit. Examples include gross profit margin, operating profit margin, and net profit margin.</p> Signup and view all the answers

<p>ROA measures the company's success in using assets to earn a profit. It is calculated as $\frac{\text{net profit}}{\text{average total assets}}$.</p> Signup and view all the answers

<p>ROE shows the relationship between net income and ordinary shareholders' investment in the company.</p> Signup and view all the answers

<p>EPS indicates the amount of net income earned for each outstanding ordinary share and is computed by dividing net income by the weighted-average number of ordinary shares.</p> Signup and view all the answers

<p>P/E ratio shows how much an investor is willing to pay for each unit of earnings and is widely quoted in financial statistics.</p> Signup and view all the answers