financial analysis W4L2 Flashcards
How are Financial Instruments typically divided among investors?
Financial Instruments are often divided into smaller portions, allowing many investors to own small parcels rather than a single investor supplying all the required funding.
Why are Financial Instruments divided into smaller parcels among multiple investors?
This division allows investors to contribute smaller portions of funding, each owning a small parcel, rather than a single investor supplying the entire amount required by a company.
Who typically owns equity in a company?
Equity is primarily owned by shareholders within a company.
How do investors holding equity typically receive returns?
Investors holding equity receive returns through dividends, which are payments made by the company to its shareholders.
In terms of ownership, what does a “small parcel” refer to within equity?
In the context of equity, a “small parcel” refers to shares, which represent ownership stakes in a company.
Who typically owns debt within a company’s capital structure?
Debt is typically owned by banks and other entities that lend money to the company.
How do investors holding debt typically receive returns?
Investors holding debt receive returns through interest payments made by the company to those who have lent money.
What does a “small parcel” refer to within debt instruments?
In the context of debt, a “small parcel” refers to bonds, which represent the debt securities issued by the company.
How does the certainty of repayment in equity compare to debt within a company’s capital structure?
Repayment in equity isn’t guaranteed, as it involves sharing profits with shareholders, while debt repayment is an obligation
formula for working capital
Current Assets – Current Liabilities
what are the two liquidity ratios
- current ratio and acid test ratio
current= current asset/current liabilities
acid test ratio= current assist - inventories/current liabilities
What are the types of efficiency ratios in financial analysis?
Receivables
Inventory
Overall Working Capital
What is the significance of Receivables and Inventory Ratios within the context of working capital?
receivables and Inventory Ratios in working capital show how quickly a company collects money owed (receivables) and sells its inventory, which helps assess efficiency and cash flow health.
what are the Receivables Ratios
- receivables days = trade receivables/revenue x365
- receivables turnover= revenue/receivable turnover
what does receivables ratio measure
how effectively a company is collecting its debts
