Finance
Q10. SEC EDGAR filings are read and analysed by a program technically designed called EDGARSCAN. If comparisons have to be made among the securities of portfolio, graphs displaying multiple securities over a ten-year period, the display is simple. While there are many kinds of documents that public companies file with the SEC, we are mostly concerned with the quarterly and annual filings (10-Qs and 10-Ks) which contain key financial tables such as Income Statements and Balance Sheets. The filings are “Semi-Structured” documents. Documents are structured along loose guidelines set forth by the Securities and Exchange Commission (e.g. what sections must be present in the filing, and what accounting information must be present), but in practice there is such variety in the presentation of the financial tables that it is quite difficult to extract useful information automatically.Q11. Vertical analysis is a popular method of financial statement analysis that shows each item on a statement as a percentage of a base figure within the statement. Using common-size financial statements helps investor’s spot trends that a raw financial statement may not uncover. Vertical analysis states financial statements in a comparable common-size format (percentage form). One of the advantages of common-size analysis is that it can be used for inter-company comparison of enterprises with different sizes because all items are expressed as a percentage of some common number.
Q12. Horizontal analysis is basically a year over year comparison of ratios or line items financial statements. It financial statement analysis technique that shows changes in the amounts of corresponding financial statement items over a period of time. It is a useful tool to evaluate the trend situations. It is extremely useful to construct a common size balance sheet that itemizes the results as of the end of multiple time periods, in order to construct trend lines to ascertain changes over longer time periods. Another possible use of this format is within a benchmarking study. A company could benchmark its financial position against that of a best-in-class company by using common size balance sheets to compare the relative amounts of their assets, liabilities, and equity.Q13. Current Assets: Current ratio, also known as liquidity ratio and working capital ratio, shows the proportion of current assets of a business in relation to its current liabilities. Current ratio expresses the extent to which the current liabilities of a business (i.e. liabilities due to be settled within 12 months) are covered by its current assets (i.e. assets expected to be realized within 12 months). A current ratio of 2 would mean that current assets are sufficient to cover for twice the amount of a companys short term liabilities.Quick Ratio: also known as Acid Test Ratio, shows the ratio of cash and other liquid resources of an organization in comparison to its current liabilities. Quick ratio shows the extent of cash and other current assets that are readily convertible into cash in comparison to the short term obligations of an organization. A quick ratio of 0.5 would suggest that a company is able to settle half of its current liabilities instantaneously. Working Capital: Working capital is defined as current assets minus current liabilities. When used in this manner, working capital ratio is not really a ratio. Rather, it is simply a dollar amount.Inventory Turnover: The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is managed by comparing cost of goods sold with average inventory for a period. This measures how many times average inventory is “turned” or sold during a period. In other words, it measures how many times a company sold its total average inventory dollar amount during the year. A company with $1,000 of average inventory and sales of $10,000 effectively sold its 10 times over.Q14. .The Cash Conversion Cycle (CCC) is calculated with the Days Inventory On Hand (DOH) plus Days Sales Outstanding (DSO) minus Days Pays Outstanding (DPO), (CCC=DOH+DSO-DPO). The lower CCC, the more liquidity a firm has. Since B has more CCC it has more liquidity, but both DSO and DPO are low, which can be explained that B has more cash from their sales, and less cost from their payments than A. So from a liquidity point of view B is better than A, but in the long term A might have more clients and suppliers than B since its more flexible in their payments methods.