Module 7 Study Note Flashcard
Question:
What is the primary purpose of financial statement analysis?
Answer:
To evaluate the financial health and performance of a company.
Question:
What are the criteria for listing on the ACE Market?
Answer:
Generally less stringent than the Main Market, focusing on growth potential rather than financial history.
Question:
What is required for drawing up accurate financial statements?
Answer:
Accurate record-keeping, compliance with accounting standards, and appropriate financial reporting frameworks.
Question:
What are the three main financial statements?
Answer:
Balance Sheet, Income Statement, and Cash Flow Statement.
Question:
What is the relationship between share price and company profits?
Answer:
Generally, higher company profits can lead to a higher share price as they indicate better performance and potential for growth.
Question:
How does financial statement analysis fit within a wider context?
Answer:
It provides insights for investors, creditors, and management to make informed decisions regarding investment, lending, and operational strategies.
Question:
What is a balance sheet also known as?
Answer:
Statement of Financial Position.
Question:
What additional information can be found in the annual report besides financial statements?
Answer:
Management’s discussion and analysis, notes to the financial statements, corporate governance disclosures, and other relevant information.
Question:
What is the role of the auditor’s report?
Answer:
To provide an independent opinion on the accuracy and fairness of the financial statements.
Question:
What is the financial reporting framework?
Answer:
A set of guidelines and standards that govern how financial statements are prepared and presented.
Question:
What is the statement of changes in equity?
Answer:
A financial statement that shows the changes in a company's equity during a specific period.
Question:
What does the income statement show?
Answer:
The company's revenues, expenses, and profits over a specific period.
Question:
What are the main components of a balance sheet?
Answer:
Assets, liabilities, and equity.
Question:
What is the cash flow statement?
Answer:
A financial statement that provides information about a company's cash inflows and outflows over a period.
Question:
What is ratio analysis?
Answer:
A technique that uses various financial ratios to evaluate a company's performance and financial health.
Question:
What are some common techniques of financial statement analysis?
Answer:
Ratio analysis, trend analysis, horizontal and vertical analysis.
Question:
How is financial statement analysis used to assess performance?
Answer:
By analyzing trends, ratios, and financial metrics to evaluate a company’s efficiency, profitability, and financial stability.
Question:
What are consolidated financial statements?
Answer:
Financial statements that present the assets, liabilities, equity, income, expenses, and cash flows of a parent and its subsidiaries as a single entity.
Question:
What are the advantages of ratio analysis?
Answer:
It provides a quick and comparative assessment of financial performance and condition.
Question:
What are the limitations of ratio analysis?
Answer:
Ratios can be affected by accounting policies, do not account for external factors, and may not be comparable across different industries.
Question:
Give an example of a profitability ratio.
Answer:
Return on Equity (Net Income / Shareholder's Equity).
Question:
Give an example of a liquidity ratio.
Answer:
Current Ratio (Current Assets / Current Liabilities).
Question:
What does a high debt-to-equity ratio indicate?
Answer:
It indicates higher financial leverage and potentially higher financial risk.
Question:
What is an accounting issue in financial statement analysis?
Answer:
Differences in accounting standards and practices can affect comparability and consistency.
Question:
What is vertical analysis?
Answer:
Analyzing financial statements by expressing each item as a percentage of a base amount, like total assets or sales.
Question:
What is horizontal analysis?
Answer:
Comparing financial data over a period to identify trends and growth patterns.
Question:
How can cash flow analysis be useful for investors?
Answer:
It helps assess the company’s ability to generate cash, pay dividends, and invest in growth.
Question:
What is a key indicator of financial performance found in the income statement?
Answer:
Net Income or Profit.
Question:
What is the purpose of the notes to the financial statements?
Answer:
To provide additional detail and context to the figures presented in the main financial statements.
Question:
What is working capital?
Answer:
The difference between current assets and current liabilities, indicating short-term liquidity.
