Project Accounting - Financial Statement Analysis and Ratios

Flashcards covering topics from the lecture notes, designed to help you review and prepare for your exam.

What is the main objective of financial reporting?

To provide a summary of financial position, financial performance, and changes in financial position.

Who are the primary users of financial reporting?

Shareholders/Stockholders, Management, Providers of Debt Capital, and Government

What is the statement of financial position?

A summary of a firm’s financial position at a specific point in time.

What are the components of the statement of financial position?

Current Assets, Non-Current Assets, Ordinary Shares, Reserves, Preference Shares, Non-Controlling Interest, Current Liabilities, and Non-Current Liabilities.

What is the statement of comprehensive income?

A summary of financial performance for the financial year, matching income and expenses.

What are the income components of the statement of comprehensive income?

Turnover, Operating Income, Investment Income, Non-Recurring Income, and Other.

What are the common expense items in the statement of comprehensive income?

Cost of Sales, Operating Expenses, Non-Recurring Expenses, Finance Cost, Taxation, Non-Controlling Interest, Preference Dividends, and Ordinary Dividends.

What is the statement of cash flows?

A summary of a firm’s cash flows for the financial year.

What are the three components of the statement of cash flows?

Cash from Operating Activities, Cash from Investing Activities, and Cash from Financing Activities.

What is the primary objective of financial ratios?

Simplify the evaluation of the financial performance and position of a company.

What are the requirements for effective financial ratios?

Meaningful, Relevant, and Comparable.

What are the types of ratios?

Liquidity ratios, solvency ratios, and profitability ratios.

What does liquidity ratios measure?

Measures a company's ability to pay off its short-term debts as they become due using current or quick assets.

What does solvency Ratios measure?

Compare a company's debt levels with its assets, equity, and earnings to evaluate the likelihood of a company staying afloat over the long haul.

What does profitability Ratios measure?

Convey how well a company can generate profits from its operations.

What does profitability ratios evaluate?

Evaluates efficiency with which a company utilises its capital to generate turnover.

What does the current ratio focus on?

Focuses on current assets and current liabilities.

What does the cash ratio indicate?

Indicates if sufficient cash is available to cover current liabilities.

What are the conventional norms of comparison for the current ratio?

Value of 2:1

What does the quick ratio measure?

Measures a company's short-term liquidity against its short-term obligations.

What does debt assets ratio indicate?

Provides indication of the portion of the total capital requirement that is financed by means of debt capital.

What does debt equity ratio measure?

Compares amount of debt capital with equity capital.

What does financial leverage ratio measure?

Amount of total assets is compared with Amount of total equity capital included in the company's capital structure.