Finance

Frequently Asked Questions

QUESTIONS ABOUT PART A OF THE ASSIGNMENT

1. Do I have to show my calculations?

You are required to perform ratio analysis on the Income Statement and the Balance Sheet Position under the three headings used in the text and lecture (profitability, liquidity and financial stability). You are required to show your calculations for the ratio analysis. The number of ratios performed under each heading should reflect the marks allocated to each. You do not have to show the calculations for the percentage analysis as most students do this on an excel spreadsheet but you need to submit it in a Word document – the template supplied.

2. Do I calculate ratios for the first year?

Yes you do. Where you can't calculate an average number just use the first year's figure and make a note explaining that this is what you have done and that this will limit the interpretation you can place on that ratio.

3. Do we calculate the average for each year or over all three years?

Where you are required to use averages you can only, logically, use the average over a given year. For example, if you are calculating return on assets for 2009 you begin the year with a certain amount of assets and may end it with more assets. To use the opening balance of assets would understate how many assets you had to earn the return during the year and overstate the ROA. If you use the closing balance then you would be overstating how many assets you had to use during much of the year and so understating ROA. The best figure is to average the opening and closing figures for the year. The opening assets for the 2007 year would have no bearing at all on the 2009 year so it makes no logical sense to average over 3 years figures.

4. How many places should I round my answers to?

When calculating the ratios or the percentage analyses round your answer to one or two decimal places. Sometimes rounding to the nearest integer can miss some of the finer detail...