Unit 5 Flashcards

1
Q

Net working capital

A

Current assets - Current liabilities

Must be positive because I would mean enough cash is available to pay off liabilities

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2
Q

Ratio analysis

A
  1. Comparatively: the in(de)crease on ratio from last year to now
  2. Why is there an increase
  3. If it decreased, suggest ways to improve it
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3
Q

Time trend analysis

A

Looks at same ratio over a number of years

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4
Q

Peer group analysis

A

Compares ratio with similar firms in the same industry

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5
Q

Problems with financial statement analysis

A
  1. Different firms use different accounting procedures
  2. Different firms end their fiscal years at different times
  3. Unusual events may affect financial performance
  4. Companies in same industry may not be comparable
  5. Many firms are conglomerates
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