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cisi: securities > Chapter 8: Accounting Analysis > Flashcards

Chapter 8: Accounting Analysis Flashcards

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SIE Exam flashcards
1
Q

What is a Balance Sheet?

What is the equation for balance?

A

Provides a snapshot of a companies financial position. Its 3 sections are Assets, equity and liabilities. These must balance.

Assets = equity + liabilities

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1
Q

What Are Three Major Statements?

A
  1. Balance Sheet (Statement of financial position)
  2. The Income Statement
  3. A Cash Flow Statement
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2
Q

What is the Income Statement?

What does it show?

A

Summarises income and revenue that is earned and the expenses that are incurred by the company.

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3
Q

What is a Cash Flow Statement?

What are the 3 activities?.

A

The statement identifies how much cash the company has generated over the accounting period and how much cash has been spent.
The three activities are operating, investing and financing activities.

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4
Q

What are Additional Statements to Help Stakeholders Compare to Previous Years?

The local state…..

A

Statement of comprehensive income and a statement of changes in equity and notes.

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5
Q

What is an Audit?

What does these do?

A

An independant assesment of the companies account that have been prepared by the directors.

Release an auditors report to the member / shareholders confirming this is a fair and accurate view of the company.

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6
Q

What are the 5 Elements that Appear in a Set of Financial Statements?

There are 5.

A
  1. Assets
  2. Liabilities
  3. Equity
  4. Revenue
  5. Expenses
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7
Q

What is the Combination of Accounting Regulations?

This is similar the FRM people?

A

Generally accepted accounting principles (GAAP)

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8
Q

What is the IASB?

What do they do?

A

The International Accounting Standards Board.
Produce a set of high quality, transparent comparable information for financial statements.

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9
Q

What is the ISSB?

What do they do? ESG?

A

International Sustainability Standards Board.
Produce standards for high quality documentation surrounding ESG matters.

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10
Q

What is the IFRS?

What do they do? Its a mouthful but simple…

A

International FInancial Reporting Standards

A non profit, public interest organisation established to develop high quality, understandable, enforceable and globally accepted accounting and sustainability disclosure standards.

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11
Q

What was the IASB Formally Called?

A

The International Accounting Standards.

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12
Q

What is a Group Account and When is it Needed?

A

A consolidated financial statement from a parent company and all the subsidary companies that it controls. Appearing as a single statement.

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13
Q

What are the 2 Issues that can Arise When Amalgamating Group Accounts?

Car show?

A
  1. **Goodwill **(Cost of investment in the subsidary, over the net assets)
  2. Non Controlling Assets (% of a subsidary that is owned by other investors e.g. if the firm only owns 70% the non controlling interest would be 30%)
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14
Q

What is Depreciation?

What asset type does this apply to?

A

Is applied to tangiable non-current assets (plant / machinery), whereby the reflection of its use over time is called depreciation on the financial statement.

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15
Q

What is Depreciation of Intangiable Non-Current Assets Called?

A

Amortisation.

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16
Q

What are Depreciation and Amortisation Recorded as on Financial Statements?

A

Expenses.

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17
Q

What is the Equation for Straight Line Depreciation?

A

SLD = (Cost-disposal value) / Useful economic life in Years

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18
Q

What is the Formula for Equity?

What is it the sum of (Accounting)?

A

Equity = Share Capital + Reserves

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19
Q

What are the 4 Main Types of Equity?

A
  1. Share Capital (Nominal value of share capital in issue)
  2. **Capital Reserves **(From revaluation reserves and share premium account)
  3. Revenue Reserves (Retained Profits)
  4. Non-Controlling Interests (When a parent company controls a subsidary but does not own all of the share capital)
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20
Q

What is a Non-Current Asset?

These can be either…..?

A

Those in long-term, continuing use by the company. They represent major investments made by the company.

Either tangiable (physical: land or plant) or** Intangiable** (non-physical: knowledge or patents)

21
Q

What are Current Assets?

A

Assets purchased with the intention of resale or conversion into cash, usually within a 12 month period.

22
Q

What is a Non-Current Liability?

What are examples of this?

A

Companies borrowing not repayable within the next 12 months e.g. long term loans or leases.

23
Q

What is a Current Liability?

What are examples of this?

A

This includes the amount of money the company owes to its suppliers or trade payables, that is due within the next 12 months. (Overdrafts or tax)

24
Q

What does the “Bottom Line” of an Income Statement Show?

A

Earnings per Share.

25
Q

What is Cost of Sales?

On an income statement, what are examples of this?

A

Costs to the company of generating sales made in the financial year. E.g. raw materials or wages to staff.

26
Q

What is Operating Profit?

A

The gross profit before financing costs and tax, less other operating expenses that the company has incurred.

This could include distribution costs, management salaries, legal fees etc.

27
Q

What is Operating Profit AKA?

The classic.

A

Profit before interest and tax (PBITA) or earnings before interest and tax (EBIT).

28
Q

h

What is Net Income?

A

Net Income reflects all of the revenues earned during the period, less all of the expenditures incurred.

29
Q

What is the Equation for Earnings Per Share?

FOR ORDINARY SHARES

A

Net Income for the Financial Year **- **Dividends on Preferred Shares / No. Ordinary shares in issue

30
Q

What is EBITDA?

A

Earnings before interest, Tax, Depreciation and Ammortisation.

31
Q

What are the 3 Main Headings in a Cash Flow Statement

A
  • Operating Activities
  • Investing Activities
  • Financing Activities
32
Q

What are Operating Activites?

On a cash flow statement.

A

The cash that has been generated from the trading activities of the company i.e Interest paid.

33
Q

What are Investing Activities?

On a cash flow statement.

A

Investment income (dividends and interest) received in the form of cash during the year, the cash paid to purchase non current assets and sales of these during the year.

34
Q

What are Financing Activities?

On a cash flow statement.

A

Includes the cash spent during the year on paying dividends to shareholders, borrowing on a long term basis or the cash raised from issuing shares, less the cash spent repaying debt or share buybacks.

35
Q

What is Enterprise Cash Flow?

A

Is the free cash flow before considering payments made to any of the providers of the finance firm.

36
Q

What is Equity Cash Flow?

A

Is the free cash flow to the shareholders, after financing cost to lenders, but before dividend payments to the shareholders.

37
Q

What is the Return on Capital Employed Calculation?

A

ROCE = Operating Profit / Capital Employed x 100

38
Q

What is the Equation for Return on Assets?

This should give you the same answer as ROCE

A

ROA = Operating Profit / Total Net Assets x 100

39
Q

What is the Equation for Return on Equity?

A

ROE = Net income / Shareholders Equity x 100

40
Q

What is the Equation for Asset Turnover (Number of times)?

A

AT = Revenues / Total Net Assets

41
Q

What is the Current Ratio Formula?

What does the number mean.

A

CR = Current Assets / Current Liabilities

The higher the number, the better the company is suited to meet its liabilities.

42
Q

What is the Quick Ratio (Acid test) Formula?

A

QR = (Current assets - inventory) / Current Liabilities

43
Q

What is the Price Earnings Ratio (P/E Ratio) Equation?

A

P/E = Current Market Price per share / Earnings per Share

44
Q

What is the Debt to Equity Calculation?

A

All non-current liabilities / Total Equity

45
Q

What is the Net Debt to Equity Calculation?

A

The normal Debt to Equity ratio, less the cash and short term investments that are within the current assets.

46
Q

What is the Equation for Interest Cover?

A

IC = Operating Profit / Interest costs

47
Q

What is the EQ for EPS?

Ordinary Shares?

A

Net profit or loss attributable to ordinary shareholders / average weighted number of ordinary shares in an outstanding period

48
Q

What is the EQ for EPS on Preference Shares?

A

(Net Income - Dividends on Preferred Shares) / Number of ordinary shares in Issue

49
Q

What is Capital Expenditure?

Caps?

A

Money spent to buy non-current assers, such as PPE, It is reflected in the Balance Sheet

50
Q

What is Revenue Expenditure?

What comes out the revenue immediately?

A

Money spent that immediatley impacts the income statement, such as wages paid to staff, rent on property and professional fees.

cisi: securities (11 decks)

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