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AIBF
Financial Statement
Analysis Training
Asalamualikum!
Khalid Zarif
Current engagements
Deputy Director & Academic Head of AIBF
President of Afghanistan Association of Professional
Accountants (AAPA)
Bank Millie Afghan (BMA) Supervisory Board Member
President of Afghan Social Researchers Association (ASRA)
Work Experiences
Business Unit Manger & adjunct Trainer, AUAF-PDI
Technical Adviser, FinTRACA- Da Afghanistan Bank
Custom Analyst- Ministry of Finance
Official of Treasury Department- Ministry of Finance
Education:
Global MBA plus finalist of ACCA- Continuous
BSc from Oxford Brookes University
Certified Accounting Technician (CAT)
1.
INTERPRETATI
ON OF
FINANCIAL
STATEMENTS
2.
3.
4.
5.
6.
Accounting: Definition
Is the process of
Recording
Classifying
Summarizing
Interpreting
in journal
in ledger and
in Financial Statements
financial information in
order to make decisions
Financial Statements
2.
3.
4.
5.
Income statement
Continued
Asset
Current Assets: are those assets that are cash, will be converted
into cash or will be used up within one year
Liability
Capital/Equity/net assets
The top half of the statement shows the assets of the business
with non current asset first and current assets below the non
current assets
Changes in equity
(IAS-16)
(IAS-23)
(IFRS-3)
(IAS-38)
(IAS-36)
(IAS-28)
(IAS-40)
(IAS-38)
(IAS-41)
Current Assets
Inventories
Trade Receivable
Assets held for sale
Other current Assets
Cash and cash equivalents
Total assets
(IAS-2)
(IFRS-5)
Income : consists of
Expense: consists of
QUESTION
In the month of January, a business had these transactions:
Sales $150,000
Purchases $70,000
Returns inwards $5,000
Returns outwards $1000
QUESTION
The following information relates to Minnies hairdressing
business in the year ended 31 August 20X7:
Expenses
7,100
Opening inventory
1,500
Closing inventory
900
Purchases
12,950
gross profit
12,125
Inventory drawings
75
What is the sales figure for the business:
A
$32,700
B
$25,600
C
$25,675
D
$25,750
Interested
parties
Ratio Analysis
Is a tool for measuring a firms liquidity,
profitability, and reliance on debt financing,
as well as the effectiveness of managements
resource utilization.
How the ratio means are enhanced? if we
compare with:
Past performance (i.e. past years ratios)
Target Ratios
Other companies ratios (i.e.
competitors ratios)
Industry as a whole
Ratio Analysis
In order to make sense of whether ratios are
good or bad, we need to answer the below
questions:
TYPES OF RATIOS
Category
Ratio
Description
Profitability
Ratio
Gross profit
Net profit
Asset turn over
Return of capital employed
Return on Equity
Current ratio
Liquidity Ratio
Quick(acid test) ratio
Liquidity
(Efficiency)
Ratio
Gearing Ratio
Investor Ratio
Profitability
Profit margin
Profitability
Return on capital employed
Measures
Examine
Change
year to year
Comparison to similar entities
Comparison with current market borrowing rates
FIA FFA ACCA PAPER F3 FINANCIAL ACCOUNTING
Profitability
Asset turnover
= times pa
Profitability
Relationship between ratios
ROCE can be subdivided into profit margin and asset turnover.
Profit margin
PBIT
Sales revenue
Asset turnover =
Sales revenue
ROCE
PBIT
Capital employed
Capital employed
Profitability
Return on equity
Higher
gearing
2.
overtrading
Measuring gearing
There are two methods commonly used to express gea
ring as follows.
Debt/equity ratio:
Loans + Preference share capital
Overtrading:
Overtrading arises where a company expands its s
ales revenue fairly rapidly without securing additio
nal long-term capital adequate for its needs.
Investors ratios
Introduction
Earnings per share (EPS) is widely regarded as the most
important indicator of a companys performance. It is im
portant that users of the financial statements:
1. are able to compare the EPS of different entities and
2. are able to compare the EPS of the same entity in dif
ferent accounting periods.
Basic EPS
The basic EPS calculation is simply:
Earnings
Shares
Investors ratios
Activity: