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Financial Reporting and Accounting > FRA > Flashcards

FRA Flashcards

1
Q

What is the formula for RoE?

A

Profit / equity
Higher is better

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2
Q

What is formula for ROCE?

A

Profit before interest and tax (PBIT) / Capital employed (total assets - total current liabilities)
(Solely measures revenue generated by operations, EBIT includes additional income)
- overall performance of the entity
Higher is better

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3
Q

Net profit margin ratio formula

A

PBIT / Revenue
Higher is better

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4
Q

Gross profit formula

A

Gross profit / revenue
Higher is better

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5
Q

Asset turnover formula

A

Revenue / Capital employed
Higher better

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6
Q

Non-current asset turnover formula

A

Revenue / Non-current assets
Higher

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7
Q

Inventory turnover formula

A

Closing inventory * 365 / cost of sales
Higher better

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8
Q

Trade receivables ratio formula

A

Trade receivable * 365 / revenue
Higher better

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9
Q

Trade payables formula

A

Trade payables * 365 / credit purchases
higher better

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10
Q

What is the cash cycle + formula?

A

Accounts receivable days + inventory days - accounts payable days = cash cycle
- measures the numbers of days it takes to acquire and sell invent ory and convert this into cash

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11
Q

Current ratio formula

A

Current assets / Current liablities
- companies that generate cash can often operate with it under 1

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12
Q

Quick ratio formula

A

Current assets - inventory / current liabilities

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13
Q

Interest cover formula

A

EBIT / interest expense
Depends on industry - regulated low would be find, in volatile industries, high is preferred

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14
Q

Gearing ratio formula

A

Total debt / shareholder equity
High > 50% | 25-50% usually optimal | <25% Low

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15
Q

What does IAS 32 Debt and equity imply?

A

Debt - liability: obligation, outflow, reliably measured
Equity - no obligation -> residual interest

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16
Q

What does IAS 32 compound instruments mean?

A

Fair value - amount that an asset can be exchanged for
Total FV - LiabilityFV = residual equity FV

17
Q

What is convertible debt?

A

Debt that appears as both equity and debt - split presentation into libaility and equity amounts

18
Q

What is the IAS 37 provision criteria?

A
  • Present obligation from past event
  • Probable outflow of economic benefits
  • Method to evaluate timing and amount
    = all 3 = provision
19
Q

What are the two types of obligation?

A

Contractual and Legal

20
Q

What to do with expected values?

A

When there is a large number of items, use weight them (% * number)

21
Q

What is an onerous contract?

A

When the unavoidable costs of meeting obligations under a contract outweighs the benefits of the contract

22
Q

What is discounting?

A

When there is time between the settlement of an obligation - record a liability at present value of expenditure required

23
Q

What does IAS 37 restructuring mean?

A

Restructuring creates constructive obligation when: detailed plan and expectation from those impacted

24
Q

What does IAS 36 impairments relate to?

A

Ensures assets carried at no more than the recoverable amount

25
Q

What does IAS 38 intangibles mean?

A

Recognition criteria for development costs and applying accounting principles

26
Q

What does IAS 38 BEAUTI stand for?

A

Benefits
Expenditure
Adequate resources to carry out
Usefulness
Technically feasible
Intention to complete

27
Q

What are exceptional items?

A

Charge incurred by a company that must be noted separately - distorts ratios
(e.g. profits or losses from selling a business)

28
Q

What happens if gearing is high?

A
  • Further borrowing might be hard
  • Might indicate that there has been investment that will lead to higher profits - need to know how they have been borrowed
29
Q

What are some evaluation points of ratios?

A
  • Different accounting policies have been applied (non-current assets could have been recorded at depreciated cost or revalued)
  • Different commerical practices (leasing or buying)
  • Have ratios been defined the same way?
30
Q

How do you report development costs?

A

Write off profit and loss as incurred - expenditure on research

Financial Reporting and Accounting (6 decks)

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