L06 - Analyzing & Interpreting

Question 1

What are the 3 steps to estimate total fixed costs, for solvency analysis? (2)

Answer 1

2 time periods (costs, activity)

Question 2

What analysis forms do you know? (2)

Answer 2

Vertical and horizontal analysis

Question 3

What does horizontal analysis?

Answer 3

Changes in data across time

Question 4

What does vertical analysis?

Answer 4

Conversion into ratio form

Question 5

How do you calculate percent change?

Answer 5

Question 6

How do you calculate

• ROFL (return on financial leverage)
• ROE (return on equity),
• ROA (return on assets) ,

Answer 6

• ROFL = ROE - ROA
• ROE = Net income / average total stockholders` equity
• ROA = Earning without interest expense / average total assets =

Question 7

Following the DuPont analysis, what two measures can return on assets (ROA) be disaggregated into? (2)

Answer 7

• Net profit margin (PM)
• Asset turnover (AT)

Question 8

How do you calculate ROA with DuPont analysis? (2)

Answer 8

ROA = Profit Margin (PM) x Asset Turnover (AM)

(Kennzahl, die die Rentabilität eines Unternehmens in Bezug auf seine Vermögenswerte misst.)

Question 9

Definition:
Whenever we compare an Income statement amount with a balance sheet amount, the balance sheet amount should be, .. (2)

Answer 9

• the average balance for the period (beginning balance plus ending balance divided by 2)
• rather than the year-end balance

Question 10

What parameters do you use to

• analyze the liquidity (4)
• analyze the solvency? (2)

Answer 10

Question 11

How can a company use DuPont Analysis?

• three components
• overall Formula

Answer 11

A company can break down its return on equity (ROE) into three components, providing insights into different aspects of its performance:

• Profitability (PM)
  Evaluate Operational Efficiency (Net Profit Margin)
• Efficiency (AT)
  Assess Asset Utilization (Asset Turnover)
• Use of leverage
  Monitor Financial Leverage (Equity Multiplier)

Overall Formula for ROE
ROE = Net Profit Margin x Asset Turnover x Equity Multiplier

Question 12

How does solvency analysis help investors and creditors assess the financial stability of a company?

• What key metrics are commonly used in this evaluation? (3)

Answer 12

Assessing its ability to
meet long-term financial obligations.

Commonly used metrics

1. Debt-to-Equity Ratio
2. Interest Coverage Ratio
3. Cash Flow-to-Debt Ratio
   (assets, & liabilities)

Question 13

Accounts Receivable Turnover (3)

Answer 13

Average Collection Period =
365 / Accounts receivable turnover ratio

• Measures the frequency of the revenue collection cycle
• Helps to monitor the rate of collection for credit sales
• A low ratio implies that collection of credit sales is slow