Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
AFA
Block 2.3 - economic analysis
| Question | Answer |
|---|---|
| what is the importance of magnitude result for: a) the investment analyst b) the credit analyst | a) the result is the most important determinant of the security's value b) the profit and cash generated by operating operations are the most outstanding points when verifying the capacity to meet the interest payment & repayment of the principal |
| what should the analyst consider? | 1. is it adequate and of quality? 2. what elements are the most reliable to make forecasts? 3. degree of stability of income and expenses? 4. ability to generate profits? |
| what influences the way that the company is financed? | its profitability and its risk - and consequently affects the value of its shares |
| what makes up the liabilities structure balance? | 1. permanent capital = must obtain necessary liquidity at a reasonable level of risk 2. indebtedness = convenient to favour highest possible profitability, within a reasonable level of risk |
| how is the result (profit) obtained? | total income - total expenses - it is a calculation derived from certain accounting conventions in which, in turn, several criteria and estimates fit - this is what makes it impossible to speak of a single result figure |
| state the reasons why it is impossible to speak of a single result figure for the result | 1. estimates always imply allocating expenses and income between the present and future when distributing the benefit over more than one accounting year 2. accounting standards allow a variety of alternative criteria = big variety of forms of application |
| when is the result of a higher quality? | - when conservative criteria are applied - has sufficient provisions and risk coverage (discretionary expenses) - considered that greater variability of benefits, lowers the quality |
| what external factors can affect the quality of the result? | 1. inflation - reduces quality 2. political-social instability - possible reparation of profits from changes in exchange rates 3. legal environment/political decisions - environmental regulations, sectoral regulations, dependence on income from traffic |
| what analysis is performed on the profit & loss account? | 1. income analysis - of different sources of income, composition of income 2. expenditure analysis - composition & evolution, study of discretionary of expenses, classification into fixed, variable and break-even analysis |
| when is sales and revenue analysis performed | when you need to know the main sources of income of a company in a segmented way (geographical and product lines) to calculate the future level of growth/profitability |
| in sales & revenue analysis, the market/product line may have? | 1. different profitability 2. distinct growth 3. different future potential |
| how can having several alternative outcomes affect risk? | more alternative outcomes = greater level of risk |
| what are the 3 types of global risk? | 1. commercial risk = affects EBIT, operating result due to fluctuations in market 2. financial risk = debt, PBT = event affect result & modify profitability, debt increases fixed payment & forces higher result 3. management risk = variability of result |
| what is operating leverage? | uncertainty vs sales forecasts = sales change = operating income varies = need to determine volume of sales necessary for assets to generate profits (profitability/break-even point), and analyse the sensitivity of operating income with sales (leverage) |
| what is the operating leverage when there are large fixed costs but small variable costs? | high operating leverage |
| what are fixed costs? | produced even if revenue is not generates - not affected by volume of business activity - if sales increase, then they vary gradually/slightly |
| what are variable costs? | depend directly on the volume of sales that we have |
| what is the breakeven point/profitability threshold? | sales volume that make operating result equal to 0, and where it begins to become positive - greater it is, greater risk that sales can't reach profits - rest costs be covered by gross margin (not enough, can't fund future expenses & repay capital) |
| what do variations of gross margin depend on? | 1. unit sales price 2. number of units sold 3. unit cost of sales |
| what type of analysis is variations of gross margin? | internal analysis = to identify factors causing variations and evaluation between two or more periods of time |
| state limitations of break even/profitability threshold? | 1. costs aren't clear to split 2. variable costs assumed proportional to sales 3. fixed costs within margins & change by a management decisions 4. sales unit prices & composition are constant 5. factor prices don't change 6. no inventory variations |
| state the relationships between sales revenue and breakeven? | 1. sales revenue > breakeven = PROFIT ZONE 2. sales revenue < breakeven = LOSSES 3. if no fixed costs = NO BREAKEVEN POINT 4. sales - variable costs = CONTRIBUTION MARGIN |
Created by:
patriciam03
Popular Accounting sets