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The Income Statement uses total revenue as the base, while the Balance Sheet uses total assets as the base.

Preparing common-size financial statements involves reporting only percentages, without dollar amounts, to facilitate comparisons.

Benchmarking involves comparing a company to standards set by others in the same industry or market to drive improvement.

<p>Financial ratio analysis includes 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>Inventory turnover 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>Receivable turnover is computed by dividing net sales by average net accounts receivable.</p> Signup and view all the answers

<p>The Cash Flow Statement can be prepared using the direct method by analyzing cash receipts from customers, cash payments to suppliers, and cash disbursements for operating expenses.</p> Signup and view all the answers

<p>The components of cash flows from operations are cash receipts from customers, cash disbursements to suppliers, and cash disbursements on operating expenses.</p> Signup and view all the answers

<p>Cash receipts from customers are calculated by adding sales of the current period to the beginning period accounts receivable and subtracting the end of period accounts receivable.</p> Signup and view all the answers

<p>Cash payments to suppliers can be determined by adding 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 steps for calculating cash disbursements on operating expenses involve considering general expenses, prepaid expenses, expenses payable, and property taxes payable.</p> Signup and view all the answers

<p>The direct cash collection from customers can be determined using one Income Statement and two Balance Sheets to calculate cash receipts from customers and other cash payments.</p> Signup and view all the answers

<p>The main difference between the direct method and indirect method lies in the way operating cash flows are calculated and presented.</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 debt ratio shows the proportion of assets financed with debt. It is calculated as $\frac{\text{Total Debt}}{\text{Total Assets}}$.</p> Signup and view all the answers

<p>The times-interest-earned ratio measures the number of times operating income can cover interest expense. A high ratio indicates ease in paying interest.</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>The P/E ratio shows how much an investor is willing to pay for each unit of earnings. It is widely quoted in financial statistics because it provides insight into investor sentiment and market valuation of a company.</p> Signup and view all the answers

<p>Dividend yield measures the percentage of a share's market value returned annually to shareholders as dividends. It is calculated as $\frac{\text{Annual Dividends per Share}}{\text{Market Price per Share}}$.</p> Signup and view all the answers

<p>Book value per ordinary share indicates the recorded accounting amount for each share of ordinary shares. It is calculated as $\frac{\text{Ordinary Shareholders' Equity}}{\text{Number of Ordinary Shares Outstanding}}$.</p> Signup and view all the answers

<p>Profitability ratios, including gross profit margin, show the percentage of each sales dollar earned as gross profit. Gross profit margin is calculated as $\frac{\text{Gross Profit}}{\text{Net Sales}}$.</p> Signup and view all the answers

<p>ROE shows the relationship between net income and ordinary shareholders' investment in the company. It is calculated as $\frac{\text{Net Income}}{\text{Ordinary Shareholders' Equity}}$.</p> Signup and view all the answers

<p>Horizontal analysis involves studying percentage changes from year to year in financial statements. In 2016, Nestlé's horizontal analysis shows a 0.77% increase in net sales and a 6.08% increase in operating profit 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>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. Nestlé's trend analysis for operating profit over a five-year period shows fluctuations, with the lowest point at 81% in 2014 but climbing back to the same level as 2013.</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%. It provides insight into the relationship of financial statement items relative to the total.</p> Signup and view all the answers

<p>The three financial statement analysis techniques are horizontal analysis (studying percentage changes from year to year), trend analysis (indicating the direction a business is taking), and vertical analysis (expressing financial statement items as a percentage of the total).</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>Financial statement analysis techniques, including 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