Summary
Summary Financial accounting
- Course
- Institution
This provides information on how to analyse financial statements
[Show more]
Seller
Follow
BookSquad
Reviews received
Content preview
Unit 6: Analysis of Financial StatementsTechniques available to analyse financial statements
It is necessary for organisations to evaluate their financial statements to evaluate the financial
organisation based on its recent performance. The evaluation of financial statements is typically do
following types of comparisons:
Comparing with previous financial statements over a specified period of time e.g. 5 years
Using a financial statement from the past as a basis and indexing any future financial statements
expressed as a percentage
Expressing parts of the financial statements as a percentage of overall for comparison.
Using financial ratios for comparison such as cross-sectional analysis (comparing with
organisations) and time-series analysis (comparing ratios over time). In this module, the focu
financial ratios.
Financial ratios can be classified as profitability, liquidity, debt/solvency and resource utilisation ra
, Unit 6: Analysis of Financial Stateme
Financial Ratios
Profitability ratios Liquidity ratios Debt or solvency ratios Resource utilisa
1. Return on capital employed 1. Current ratio 1. Interest cover ratio 1. Inventory av
of days
2. Operating profit margin 2. Acid-test ratio 2. Debt to equity ratio 2. Trade receiva
number of da
3. Gross profit margin 3. Operating cash cycle/ 3. Trade payable
Cash conversion cycle number of days
, Unit 6: Analysis of Financial statements
Profitability ratios
Profitability ratios are used to evaluate profits by using a number of ratios i.e. return
employed, operating profit margin and gross profit margin.
Liquidity ratios
Liquidity ratios are used to evaluate current assets & liabilities by using a number o
current ratio, acid test ratio and operating cash cycle.
Debt or solvency ratios
Debt or solvency ratios are used to evaluate the ability of the organisation to serv
i.e. interest cover ratio and debt to equity ratio.
Resource utliisation ratios
Resource utilisation ratios are used to measure the ability of the organisation
inventory and trade payables/receivables i.e. inventory turnover period, trade
average number of days and trade receivables average number of days.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller BookSquad. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $2.83. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
76799 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now