Untitled Flashcard Set

Week 2: ACT Revision 

• BS: overall health of the company, 

  • good for investors or people who want to buy the company, managers, government 

  • Also knowledge for competitors and collaborators/suppliers

  • Shows info at a particular date

  • Inventories

    • Goods for Resale 

    • Raw Material→WIP→ Finished Good

  • Issued Bonds: Giving out cash to other company to then receive the payment back with interest

    • Always long-term liability 

    • Bond holder: asset

    • Issued by gov and large companies 

  • Equity: value of company

    • Capital stock/shareholders capital; occurs in the beginning of company

    • Retained earnings: passed profits

  • Working capital = CA-CL

    • How much money we have within 12 months 

  • A: what a company uses to generate profit

  • L+E: how companies assets are finance

    • L = owed funds

    • E = own funds

• IS: to see details behind the profit 

  • Info for period (usually yr)

    • Revenue: recorded when deal is done, no matter if the cash flow happened 

    • Cash inflow: recorded when cash is received by company 

    • Expense: recorded when deal is done, no matter if the cash flow happened

    • Cash outflow: recorded when cash is paid by company  

    • Financial Profit/loss: financial rev - financial exp 

    • Real Operating Loss: bad

    • Financial Loss: okay

    • EBT = OP-FP

    • EAT or NP  = EBT - taxes

    • Earnings Before Interest & Tax (EBIT) > or equal EBT

    • Earnings Before Interest, Tax, Depreciation, Amortization (EBITDA) > or equal EBIT

Week 2: Financial Analysis 

• Diagnostic tool for managers, shareholder, banks 

• Used for evaluation, prediction, comparison and as a base for decision making 

  • Resources

    • Financial statements

    • Capital market info

    • Inhouse calculations

  • Basic Approaches

    • Vertical analysis

    • Horizontal analysis

    • Ratios

  • Limits of financial analysis

    • Inflation

    • Economic and political changes

    • Legislation changes (taxes)

• Vertical Analysis “cake chart”

  • Analysis in relative values (%) Pie chart

  • Leads to common size financial statements = scaled items 

    • BS items scaled by total assets

    • IS items scaled by Sales

  • Purpose

    • To compare companies of different sizes

    • To analyse one company in different points of time 

  • Examples

    • Gross profit/sales, administration exp/sales

    • receivables/total assets, inv/total assets

• Horizontal Analysis “line chart”

  • A given item (or given scaled item) compared over time 

  • Purpose

    • To find a trend of a given item 

  • Examples

    • Net profit 2020 vs net profit 2022

• Ratios

  • Items of vertical analysis 

  • %

  • Benchmarking

    • Trend analysis (3-5 yrs)

    • Industry average analysis

    • Peer group analysis (similar companies) 

  • Purpose

    • Compare different companies with country or industry

    • To observe trend of a given ratio within a company 

  • Basic categories of ratios

    • Profitability

    • Liquidity

    • Efficiency

    • Leverage 

  • Proportionate Change

    • New # - Old #/Old # = 

    • Turn into %