Podcast
Questions and Answers
What is the primary goal of a company in the long-term perspective?
What is the primary goal of a company in the long-term perspective?
Which aspect distinguishes management accounting from financial accounting?
Which aspect distinguishes management accounting from financial accounting?
What does 'going concern' signify regarding a company's future?
What does 'going concern' signify regarding a company's future?
Which of the following is NOT a characteristic of management accounting?
Which of the following is NOT a characteristic of management accounting?
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How does financial accounting provide information to its users?
How does financial accounting provide information to its users?
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Which of the following responsibilities are exclusive to management accounting?
Which of the following responsibilities are exclusive to management accounting?
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Which statement best describes the nature of reports produced by financial accounting?
Which statement best describes the nature of reports produced by financial accounting?
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What is an audit in the context of financial accounting?
What is an audit in the context of financial accounting?
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What are the two methods that EU member states can choose for measuring the value of an industrial building?
What are the two methods that EU member states can choose for measuring the value of an industrial building?
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Which country mandated the use of historical cost less depreciation for measuring buildings?
Which country mandated the use of historical cost less depreciation for measuring buildings?
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How does the fair value of an asset compare to the historical cost less depreciation according to the EU directive?
How does the fair value of an asset compare to the historical cost less depreciation according to the EU directive?
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Which of the following best describes the role of the Dutch State Authority regarding measurement methods for buildings?
Which of the following best describes the role of the Dutch State Authority regarding measurement methods for buildings?
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What distinguishes the financial reporting in France from that of the EU standards?
What distinguishes the financial reporting in France from that of the EU standards?
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In Nobes' updated classification, what is the accounting treatment for finance leases in Italy?
In Nobes' updated classification, what is the accounting treatment for finance leases in Italy?
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What common factor differentiates the accounting systems in common law and civil code environments?
What common factor differentiates the accounting systems in common law and civil code environments?
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What is a primary reason for the differences in accounting practices mentioned in the content?
What is a primary reason for the differences in accounting practices mentioned in the content?
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Which cluster of accounting systems is primarily associated with Latin speaking European countries?
Which cluster of accounting systems is primarily associated with Latin speaking European countries?
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What characterizes the common-law accounting system?
What characterizes the common-law accounting system?
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Which accounting cluster is influenced significantly by governmental regulations and planning?
Which accounting cluster is influenced significantly by governmental regulations and planning?
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In which accounting cluster does the influence of beliefs or philosophies on financial regulations play a pivotal role?
In which accounting cluster does the influence of beliefs or philosophies on financial regulations play a pivotal role?
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What theory categorizes accounting systems into four main clusters?
What theory categorizes accounting systems into four main clusters?
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Study Notes
Overview of Financial Analysis
- Financial Statements are used by investors and lenders to predict returns and assess risks
- Common-size statements, trend statements, and financial ratios are used for analysis
Income Statement Analysis
- Sales: Total revenue from goods or services
- Cost of Goods Sold (COGS): Direct costs of producing goods or services (e.g., raw materials, labor, etc.)
- Gross Margin: Sales less COGS
- General & Administrative Expenses (G&A): Indirect costs associated with running the business (e.g., marketing, administration)
- Earnings Before Interest and Tax (EBIT): Gross Margin less G&A
- Interest Expense: Cost of borrowing money
- Earnings Before Tax (EBT): EBIT less Interest Expense
- Tax: Corporate taxes paid
- Net Income: Profit remaining after all expenses (COGS, G&A, interest, and taxes) have been deducted from sales;
Profit Margin Ratios
- Gross Profit Margin: Gross Margin / Sales
- Net Profit Margin: Net Income / Sales
- Expenses to Sales Ratio: Expenses / Sales
Balance Sheet Analysis
- Total Assets: Total value of a company’s assets
- Current Assets: Assets that can be converted to cash within a year
- Fixed Assets: Assets with a useful life of more than a year
- Current Liabilities: Obligations due within a year
- Non-Current Liabilities: Obligations due in more than a year
- Equity: Represents the residual interest in the assets of the company after deducting liabilities; ownership shares
Net Working Capital
- Net Working Capital= Current Assets- Current Liabilities
- It measures the net investment in the company's cash cycle
- Useful for seeing if the company has enough liquid funds
DuPont Profitability Chain
- Return On Sales (ROS): Net Income/ Net Sales
- Asset Turnover (ATO): Net Sales/ Total Assets
- Return On Assets (ROA): ROS X ATO (Net Income/ Total Assets)
- Financial Leverage (FL): Assets/Net Equity
- Return On Equity (ROE): ROA x FL (Net Income/ Net Equity)
Other Ratios
- Cash Ratio: Cash & Equivalents/ Current Liabilities
- Acid Test Ratio: (Current Assets - Inventories)/Current Liabilities
- Current Ratio: Current Assets/ Current Liabilities
- Interest Cover: EBIT/ Interest Charges
- Debtors' Collection: (Trade Receivables/Sales) x 365
- Creditors' Payment: (Trade Payables/Cost of Goods Sold) x 365
- Inventory Turnover: (Inventory/ Cost of Goods Sold) x 365
- Market Value Added (MVA): Market Value - Net Equity
- Price/Earnings (P/E): Market Value/Net Income
- Market/Book (M/B): Market Value/Net Equity
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