Archive about 'Interpretation of Financial Statements'

Reasons Or Causes for the changes re: increase or decrease in gross profit margin when comparing to previous accounting periods

When I analyse the gross profit margin by comparing to previous accounting period, I found that there is an increase in gross profit margin. Can you tell me what are some of the reasons for the increase in gross margin? What if it shows decrease in gross profit margin, please also give me some major [...]

Basic Understanding Of The DuPont Model/System: What is it and the benefits derived.

 
 
Below article looks at a very old & useful analytical tool often used in Ratio Analysis/Interpretation of financial statements namely the DuPont System/Model.
It explains what is this model and the benefits of using this model for ratio analysis.

WHAT IS DUPONT SYSTEM/MODEL

1. The DuPont System was developed by DuPont Corporation to dissect a firm’s financial statement, [...]

What Are The Differences Between Terms Like Gross Profit, Gross Margin, Gross Profit Percentage(%), Gross Profit Margin Or Gross Profit Rate?

Is there a difference when we use terms like gross profit, gross margin, gross profit %. gross profit margin or gross profit rate?

Answer:

It is interesting to note that some of us still use the above terms interchangeably.

However, take note that:

Gross Profit is an ABSOLUTE term which is simply:
[ Gross Profit = [...]

Answer To True Or False Question On Financial Statement Analysis/Ratio Analysis

Answer to True Or False Question On Interpretation Of Financial Statement or Ratio Analysis

True

False

1.

Financial statements that reflect financial data for two or more periods are often referred to as comparative statements

X

2.

Development of data that measure changes occurring from one accounting period to another is a form [...]

True Or False Question On Financial Statement Analysis/Ratio Analysis

Append below true and false questions on Financial Statement Analysis or Interpretation Of Financial statements:

True

False

1.

Financial statements that reflect financial data for two or more periods are often referred to as comparative statements

2.

Development of data that measure changes occurring from one accounting period to another [...]

Listing Of All Topics Under Interpretation Of Financial Statements

Append below a summary of articles on business accounting ratio analysis:
 

BUSINESS RATIO ANALYSIS

Ratio analysis-Frequently Asked Questions

Table/Summary Of Financial Accounting Ratio Analysis

What Is Capital Employed

Undercapitalization or overtrading and its tell tale/signs/symptoms

Overcapitalization and its tell tales/signs/symptoms

Proprietary Ratio

PROFITABILITY Ratio

Return On Assets

Net Profit Margin or Net Profit % over Sales

Gross Profit Margin or Gross Profit % over Sales

What is [...]

Table: Summary Of Financial Accounting Ratio Analysis

SUMMARY OF FINANCIAL ACCOUNTING RATIO

PROFITABILITY RATIO:

Financial Ratio
Formula
Measurements

Return on Total Assets
Operating profit before income tax + interest expense/ Average total assets
Measures rate of return earned through operating total assets provided by both creditors and owners

Return on ordinary shareholders’ equity
Operating profit & extraordinary items after income tax minus Preference dividends /  Average ordinary shareholders’ equity
Measures rate of [...]

Answer To Accounting Question IFS Test No 4 On Interpretation of Financial Statements

Answer to Accounting Test Question IFS No 4:

Current ratio

Acid-test ratio

Debt to equity ratio

1

Company issued ordinary shares for cash

I

I

D

2

Bought raw material on account

I

D

I

3

Received money from accounts receivable

N

N

N

4

Expiration of prepaid rent

D

N

I

5

Payment of cash dividend

D

D

I

6

Purchase long term investment with cash

D

D

N

7

Sale of fixed assets for cash with no gain or loss

I

I

N

8

Stock write off

D

N

I

9

Refinance [...]

Accounting Test Question IFS No 4 : Interpretation Of Financial Statements

Accounting Test Question No IFS 4:
Effect of Management Decisions On Ratios
Require:
Put by letter whether each of the actions listed below will immediately
-increase (I),
-decrease (D) or
-have no effect (N) on the ratios shown.

Current ratio

Acid-test ratio

Debt to equity ratio

1

Company issued ordinary shares for cash

2

Bought raw [...]

Answer To Accounting Question IFS Test No 3 On Interpretation of Financial Statements

Answer to Accounting Test Question IFS No 3:
(a) current ratio
= Current asset/current liabilities
= ($200,000+$810,000+$830,000)/$710,000)
= 2.59
(b) acid-test ratio
= (Current assets- inventory)/current liabilities
=($200,000+$810,000)/$710,000
= 1,42
(c) debt to equity ratio
= (Total liabilities)/Shareholders fund
=($710,000+$550,000)/($1,500,000+$1,670,000)
=0.39
(a) times interest earned ratio
=(Net Income+ Interest Expense+ Income Tax)/Interest Expense
=($210,000+$40,000+$150,000)/$40,000
=10 times