Return on debt: (interests / liabilities) x 100

Total asset turnover: (revenue / average total assets)

Equity multiplier: (average total assets / average equity) x 100

Net margin: (profit / revenue) x 100

Competitor information

The best performing company on the stock exchange for that period

Average information for the business's industry or sector

The business's own prior-year information

Reading the financial statements; understanding the main story of the financial statements; and ratio

analysis

Purely ratio analysis

Purely reading the management commentary in the annual report

Calling the business and speaking to management

Aspect. What aspect of business performance is measured by this ratio?

Message. What straightforward message about the business is delivered by this ratio?

Benchmark(s). How does the ratio result compare to the benchmark(s)?

Expectation. What was my expectation for this ratio?

True

False

Paying a dividend is always a better use of the value generated by the business than keeping this value in the business

Owners like to receive a regular cash return on their investment, otherwise they can get nervous and consider selling their shares, which has reputational and other potential consequences for the business

Paying dividends increases the value of the business

Dividends are usually tax-deductible, and there is therefore a tax benefit to the business

Debt is less risky than equity

The more debt you have, the higher your profits, since interest is often deductible for tax, and therefore less tax is payable

When interest rates are low, the more debt you take out, the higher your profits will be

Leverage can boost a company's profits if the company is able to generate a return on its assets that exceeds the interest rate

Only debt

A mixture of debt and equity

A mixture of debt, equity, and assets

True

False

Management accounting is performed by management, whereas financial accounting is performed by accountants

Management accounting informs the decisions of management, while financial accounting informs the decisions of existing and potential investors, lenders and other creditors

Management accounting involves only the recording function, whereas financial accounting involves only the reporting function

Management are only concerned with reports arising from management accounting and not those arising from financial accounting