For exams in September 2021, December 2021,

March 2022 and June 2022

The global body for professional accoutants

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 CHAPTER SUMMARY

Business Corporate governance

• Sole trader The system by which companies and

• Partnerships other entities are directed and
• Limited liability company controlled

Accounting for transactions Board of directors

Financial accounting Management accounting

Involving in a process of Analysing data to provide

recording, analyzing, information as a basis for
summarizing financial data. managerial action.

Users of financial statements Financial statements

• Internal stakeholders: Statement

Shareholders, Manager, Statement of Statement Statement Notes to
of
Employee Comprehensive of Cash of Changes Financial
Financial
• External stakeholders: Trade income Flows in Equity Statements
Position
contacts, Tax authority,…

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 CHAPTER SUMMARY
To gain a better understanding of the significance of the information in financial statements by comparing it with other relevant information.
Key ratios (more detail in the following table)
Profitability ratios
(1) Gross profit margin
(2) Net profit margin
(3) ROCE
(4) Net asset turnover
Efficiency ratios
(7) Inventory turnover
(8) Receivables collection period
(9) Payables payment period
Analysis of financial statements
Analysis of financial statements using Ratio analysis
Limitations
• Comparative information is not always available .
• The information used is sometimes out of date.
Liquidity ratios
• Interpretation requires thought and analysis. Ratios should not
be considered in isolation .
• The exercise is subjective, for example, not all companies use
(5) Current ratio the same accounting policies.
(6) Quick ratio • Ratios are not defined in standard form
Comparison
Financial position ratios
• Comparing ratios over time within the same business to establish
(11) Debt ratio
whether things are improving or declining.
(12) Gearing
• Comparing ratios between similar businesses to see whether the
(13) Leverage
company you are analysing is better or worse than average
(14) Interest over
within its specific business sector.
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