Financial Analysis Techniques

Question 1

The Financial Analysis Framework phases (6)

Answer 1

1. define purpose and context of analysis
2. collect data - financial statements, industry/economic data, MD&A, competitors
3. process data
4. analyze and interpret processed data
5. develop and communicate - conclusions and recommendations
6. follow-up

Question 2

Phase 1 of the financial analysis framework

- what it is and the output

Answer 2

1. define the purpose and context of the analysis

Objective

• list the questions to be answered
• nature and content of report to be provided
• timetable and budget

Question 3

Phase 2 of the financial analysis framework

- what it is and the output

Answer 3

2. Collect data

Output

• organized financial statements
• financial tables
• completed questionnaires from management, suppliers, etc

Question 4

Phase 3 of the financial analysis framework

- what it is and the output

Answer 4

3. Process data

Output

• adjusted financial statements
• common-size statements
• ratios and graphs
• forecasts

Question 5

Phase 4 of the financial analysis framework

- what it is and the output

Answer 5

4. Analyze and interpret the processed data

Output
- analytical results

Question 6

Phase 5 of the financial analysis framework

- what it is and the output

Answer 6

5. Develop and communicate

Output

• a report answering questions from phase 1
• recommendation regarding the purpose of the analysis

Question 7

Phase 6 of the financial analysis framework

- what it is and the output

Answer 7

6. Follow-up

Output
- updated recommendations

Question 8

If a firm’s operating income percentage is growing positively buy its operating cash flow percentage is declining negatively, then:

Answer 8

• the firm is booking sales (accrual accounting), but has not realized the cash yet

Question 9

If a fimr’s inventory and receivables grow at a much faster pace than sales, it shows…

Answer 9

• signs of poor inventory and receivables management