Unit 5

Question 1

Net working capital

Answer 1

Current assets - Current liabilities

Must be positive because I would mean enough cash is available to pay off liabilities

Question 2

Ratio analysis

Answer 2

1. Comparatively: the in(de)crease on ratio from last year to now
2. Why is there an increase
3. If it decreased, suggest ways to improve it

Question 3

Time trend analysis

Answer 3

Looks at same ratio over a number of years

Question 4

Peer group analysis

Answer 4

Compares ratio with similar firms in the same industry

Question 5

Problems with financial statement analysis

Answer 5

1. Different firms use different accounting procedures
2. Different firms end their fiscal years at different times
3. Unusual events may affect financial performance
4. Companies in same industry may not be comparable
5. Many firms are conglomerates