Financial analysis

Question 1

Examples of comparatives

Answer 1

Previous accounting periods
Budgets and forecasts
Industry averages
Other businesses (same industry)
Government stats

Question 2

Gross Profit Margin

Answer 2

Gross profit / Revenue x 100%

Question 3

Factors Influencing gross profit margin

Answer 3

Changes in revenue - Sales price changes, sales mix, new products, currency affects

Changes in cost of sales - Purchase costs, Production costs, Inventory obsolesce, Currency affects, Economies of scale

Question 4

Operating Profit Margin

Answer 4

Operating profit / Revenue x 100%

Question 5

Factors influencing operating profit margin

Answer 5

Exceptional items, Relocation or research costs, proportion of fixed and variable costs, Operational efficiency

Question 6

Gearing

Answer 6

Debt / Equity x 100%

Question 7

Factors influencing gearing ratio

Answer 7

Issuing or buying back shares
Debt management
Revaluation of non-current assets
Profitability

Question 8

Asset turnover

Answer 8

Revenue / Capital employed

Capital employed = Total assets - current liabilities

Question 9

Inventory turnover

Answer 9

number of times inv sold per year = COS / Inventory

Days inv is held before sell = Inv / COS x 365

Question 10

Trade receivables collection period

Answer 10

Trade receivables / Revenue x 365 days

Question 11

Trade payables payment period

Answer 11

Trade payables / Credit purchases x 365 days

Question 12

Return on capital employed

Answer 12

Operating profit / Capital employed x 100%