3.1 Intro to F&A
3.2 & 3.3 Financial statements
3.4 Financial statement analysis
3.5 Stocks (required) & Bonds (optional learning)
100
What is an overdraft?
The bank gives the business the right to ‘overdraw’ its bank account (can spend more money from the account than is currently in it; i.e. go into negative territory)
100
What are financial statements? Why do companies produce them?
A written report which quantitatively describes the financial health of a company. Companies are required by law to produce financial statements.
100
What is financial statement analysis?
Using data in the financial statements to evaluate a business's financial performance and financial strength
100
What are 2 ways that you can make money on stocks?
1. Capital gains 2. Dividends
200
We learned about 5 reasons why businesses need finance. Name 3 reasons
1. To setup the business 2. to run business 3. to expand through organic growth 4. to expand through acquisition 5. for special situations
200
Who uses financial statements? Name 2 groups of people
1. Owner/shareholders 2. Company's management 3. Creditors 4. Government Etc.
200
There are limitations with financial statement analysis. Name 2 limitations
1. It does not tell you the whole story (usually more digging and analysis is required). 2. Past info is no indication of future performance. 3. Data over time may be affected by inflation/deflation so comparisons between years may be misleading. 4. Companies in different jurisdictions use slightly different accounting methods, making comparisons difficult.
200
Name 2 differences between buying stocks and buying bonds
1. Equity vs. debt (owner vs. creditor) 2. Generally, stocks are more risky 3. In event of bankruptcy, bond holders have higher claim on assets than shareholders do. Etc.
300
What is a lease? What is a hire purchase? What is the main difference between the two?
Lease: Pay a monthly fee to use an asset (rent). Hire purchase: Buy an asset over a long time with monthly payments which include an interest charge. Main difference: With hire purchase, the business owns the asset at the end of the hire purchase agreement
300
What is the Income Statement? What is the Balance Sheet?
Income Statement shows how much money a company made and spent over a period of time. Balance Sheet tells the value/worth of the business at a specific point in time.
300
Fill in the 2 blanks: When conducting a vertical analysis of the Income Statement, you each express each line as a % of ______. When conducting a vertical analysis of the Balance Sheet, you each express each line as a % of ______.
Revenue; Total Assets (or Total Liabilities + Shareholder's Equity)
300
SAS Inc. has S&P ratings of B. UWC Inc. has S&P rating of CC. Which company has higher chance of default?
UWC Inc.
400
We learned about issuing shares as a source of finance. Name 1 advantage and 1 disadvantage of issuing shares
Advantage: Do not need to pay back the money raised. Etc. Disadvantage: ownership changes. Etc.
400
Pencil and paper ready: Company A has Current Assets of $1000, and Non-current assets of $2000, Shareholder's equity of $1200. What is the value of the Total Liabilities?
$1800 (note: Assets = Liabilities + Shareholder's equity)
400
After conducting ratio analysis, Mary noticed the following: From year 2011 to 2012, a company's Acid Test ratio increased from 1.3 to 2.1. What is the Acid Test? What does the increase mean?
Acid test is the ratio between the most liquid Short-term assets (cash, short term investments, account receivables) and Short-term liabilities. The increase is good sign. It means there are more liquid short-term assets to cover short-term liabilities.
400
Pen and paper ready: Singapore Airlines share price is currently 10. The Earnings Per Share is 0.49. The Price Earnings Ratio is 28. The 52-week trading range is 9.41-11.45. If you bought the stock at the highest price within the last 52 week and sold it at the current price, what is your capital loss?
$11.45-$10=$1.45
500
A small business needs external financing for 12 years. What is the most appropriate source of external finance for this situation?
Long-term bank loan. Incorrect answers: issue bonds, issue shares, any source of internal finance (retained profit, sale of existing assets, sale of inventories to raise cash, owner's savings, etc.)
500
What is the difference between Cost of Goods Sold and Operating Expenses? Explain and give examples of these costs for Shell (a petro company)
Cost of Goods Sold: the direct costs attributable to the production of the goods sold (e.g. salary of oil drillers, cost of extracting oil from the ground, etc.). Operating expenses: the day-to-day expense not directly associated with production of the goods sold (e.g. advertising costs, salary of accountants, etc.)
500
After conducting horizontal analysis, John noticed the following: Between year 2011 and 2012, a company's Operating Profit increased but its Net Income decreased. What is a potential explanation for this?
The non-operating expenses have increased (e.g. loss on sale of assets, higher interest expense, higher tax expense, etc.)
500
Pen and paper ready: A bond has face value of $1000, Coupon of 6% p.a. paid semi-annually, and maturity in 7 years. How much coupon do you receive for holding the bond for the 3 years?
$60 per year * 3 years = $180
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