WK7

Question 1

A business cannot survive without

Answer 1

cash

Question 2

Cash is not the same as

Answer 2

profit

Question 3

Profit

Answer 3

income earned and expenses incurred

Question 4

Statement of cash flows

Answer 4

cash coming in and out/received and paid

Question 5

The cash flow statement only records what kind of transactions?

Answer 5

Cash

Question 6

Principal income-producing activities

Answer 6

Operating activities

Question 7

Purchase or disposal of non-current assets

Answer 7

Investing activities

Question 8

Activities that result in changes in the size and composition of equity and borrowings

Answer 8

Financing activities

Question 9

Cash going in

Answer 9

Source of cash

Question 10

Cash going out

Answer 10

Use of cash

Question 11

How are negative numbers or subtractions recorded in the statement of cash flows?

Answer 11

With brackets

Question 12

Net cash USED in operating activities are recorded as

Answer 12

Negative numbers

Question 13

Net cash FROM operating activities are recorded in

Answer 13

Positive numbers

Question 14

The tool you use in interpreting financial statements

Answer 14

Ratio analysis

Question 15

What question does the profitability ratio ask?

Answer 15

How successfully is the business trading?

Question 16

Examples of profitability ratios

Answer 16

Gross profit margin
Operating profit margin
Net profit margin (after taxation)
Net profit margin (before taxation)
ROCE (Return on capital employed)

Question 17

Examples of liquidity ratios

Answer 17

Current ratio and acid test (quick) ratio

Question 18

What question does the liquidity ratio ask?

Answer 18

How easy is it for the business to pay for and manage its ability to meet its short-term financial obligations?

Question 19

The higher the current ratio, the more _______________ …?

Answer 19

Liquid an entity appears to be

Question 20

When a company’s liquidity is positive, the better they pay off their _________________ expenses

Answer 20

daily/operating

Question 21

Measures the effectiveness of an entity’s use of resources

Answer 21

Efficiency ratio

Question 22

The shorter it takes for businesses to turn their inventory into cash (inventory turnover period), receive its trade receivables (settlement period for trade receivables), pay off its trade payables (settlement period for trade payables), the _______________

Answer 22

better

Question 23

What question do efficiency ratios pose?

Answer 23

How effectively are the short-term assets and liabilities of the business being managed?

Question 24

Retained earnings is part of ___________.

Answer 24

capital

Question 25

Investments are part of the _____________________ assets.

Answer 25

non-current

Question 26

Interest received is part of _________________.

Answer 26

operating expenses

Question 27

Debentures are part of ____________ liabilities.

Answer 27

non-current

Question 28

Interest paid is calculated after _________________ have been calculated, contributing to profit before tax.

Answer 28

operating expenses

Question 29

A healthy company has a positive ______________________________ and negative _________________.

Answer 29

cash inflow from operating activities; investing activities

Question 30

What does positive cash inflow from operating activities and negative investing activities mean, respectively?

Answer 30

Positive cash inflow: trading position is good (buying and selling) Negative investing activities: business is expanding, positive investing activities would mean you're selling assets

Question 31

Is a negative/positive financing activities good?

Answer 31

It depends on the company's situation.

Question 32

Operating activities mostly cover

Answer 32

Day to day expenses

Question 33

Investing activities mostly cover

Answer 33

anything related to non-current assets (buying/selling)

Question 34

Financing activities mostly cover

Answer 34

debt & equity (ncl + equity/how the company borrows money to fund it)