Financial performance analysis

Question 1

What are the main sources of financial performance analysis?

Answer 1

• Income statement
• Profit/loss account

Question 2

What is the general condition for a company to be profitable?

Answer 2

In order for a company to be profitable revenues must exceed expenses.

Question 3

What do net sales compute?

Answer 3

Net sales reffers to the value of a company’s sale of goods and services

Question 4

What does the cost of sales reffer to?

Answer 4

The cost of sales is the expense for raw materials, labor and manufacturing used for production

Question 5

What are profitability ratios?

Answer 5

The profitability ratios measure the overall performance of the company it tems of total revenue generated from its activity

Question 6

What does the gross profit margin ratio show?

Answer 6

It shows how efficiently the company generates revenues from the sale of its merch and inventories.

Question 7

What does the net profit margin ratio show?

Answer 7

It shows the net income earned from the sale of goods and services.

Question 8

What is ROA

Reutn on assets

Answer 8

It basically shows how well a company can convert its investment in assets into profits

Question 9

What is ROE

Return on equity

Answer 9

It shows how efficiently the company utilizes the shareholder’s money in generating the revenues for the firm.

Question 10

What does stock market perfoamance analysis compute?

Answer 10

Is shows the performance of the company on the stock market

Question 11

What does market capitaliztion show?

Answer 11

It shows the total market value of a company’s outstanding shares of stock

Question 12

What is EPS

Earning per share

Answer 12

It is the portion of a company’s profit allocated per each share of common stock

Question 13

What does the DPS compute?

Dividend per share

Answer 13

It is the sum of declared dividentds issued by a company for every share

Question 14

What does DPR compute?

Dividend Payout Ratio

Answer 14

It measures the percentage of net income that is distributed to shareholders in the form of dividends during the year.

It shows the portion of profits the company decides to keep to fund operations and the portion of profits that is given to its shareholders

Question 15

What indicators do we use to compute the evolution of parameters?

Answer 15

• The absolute change
• The relative change

Question 16

What is income?

Answer 16

Income represents increases in economic benefits during the accounting period.

Question 17

What are expenses?

Answer 17

Expenses are decreases of economic benefits during the accounting period.

Question 18

What does the operating result show?

Answer 18

It shows the profit (or the loss) from the main (basic) activity of the company.

Question 19

How are profitability ratios grouped?

Answer 19

1. Profit margin ratios (profit related to sales)
   * Gross profit margin
   * Operating profit margin
   * Net profit margin
2. Rate of return ratios (profit related to investments)
   * Return on assets
   * Return on equity
   * Return on capital employed

Question 20

What does return on capital employed ratio show?

ROCE

Answer 20

It measures the profits generated from each capital employed.

Question 21

What is the formula of Du Pont analysis?

Answer 21

ROE = { [Profitability] * [Operating Efficiency] * [Financial Leverage] }