2.Unit Standard Number:12883

1. TITLE: Evaluate companies based on their financial statements

2.UNIT STANDARD NUMBER:12883

3.LEVEL ON THE NQF:6

4.CREDITS:15

5.FIELD:Business, Commerce and Management Studies

Sub Field:Finance, Economic and Accounting

6.ISSUE DATE:30/04/2003

7.REVIEW DATE:30/04/2006

8.PURPOSE:

Persons credited with this Unit Standard can identify the four basic financial statements (balance sheet, income statement, cash flow statement and statement of owner's equity) and are able to evaluate the liquidity, efficiency, profitability and risk of the company using standard financial ratio analysis.

9.LEARNING ASSUMED TO BE IN PLACE:

It is assumed that the learner has achieved competence against unit standards Math 4001, Math 4001A, Math 4001B, Math 4002C, and Math 4004 in addition to having achieved mathematics at Grade 12 level or equivlent.

10.SPECIFIC OUTCOMES AND ASSESSMENT CRITERIA:

Construct the four basic financial statements

Assessment Criteria

1.1A conceptual framework for financial statements is reviewed

1.2The used of information for reporting purposes (financial accounting) is differentiated from the use of information for decision purposes (management accounting)

1.3Financial items and categories are allocated to the correct statement

1.4The relationship between items on the different statements is made apparent

1.5Assumptions are clearly defined

1.6The principles of GAAP (Generally Accepted Accounting Practice) relating to the financial statements are applied

Assessment Criteria

2.1Revenue stream generation activities of a firm are identified using financial statements

2.2The characteristics of financial success are identified

2.3The role of various financial ratios in determining the firm’s financial viability is discussed

Analyse the firm to establish its financial viability

Assessment Criteria

3.1The financial viability of the firm is evaluated using the four basic financial statements are ratios

3.2The financial state of affairs of the firm is compared meaningfully to industry benchmarks or norms

3.3The financial consequences of various managerial decisions are predicted using financial statement decisions are predicted using financial statement analysis, and alternative recommendations are made when necessary to prevent financial failure.

Report on the financial viability of the firm

Assessment Criteria

4.1The report is constructed using the firm’s best practice requirement or template

4.2The analysis findings is clearly articulated

4.3Recommendations are made regarding investment in the firm

11.ACCREDITATION AND MODERATION:

Accreditation for this Unit Standard shall be from the relevant Education and Training Quality Assurer through formative and summative assessment by a registered Assessor. Assessment should be contextual and be conducted in the workplace as far as possible.

The relevant NSB and SGB should be notified of any feedback related to this qualification.

• Assessors must be registered as an Assessor with the relevant ETQA
• Moderators must be registered as assessors with the relevant ETQA
• Training providers must be accredited by the relevant ETQA
• Moderation should include both internal and external moderation where applicable
• The relevant ETQA will co-ordinate all moderation activities in accordance with their policies and procedures

12.RANGE STATEMENT:

"The four basic Financial statements" include:

• The balance sheet
• The income statements
• Statement of capital structure
• Cash generation statement

"Financial Ratios" include:

• Liquidity ratios such as the current ratio, the quick ratio and interest cover
• Leverage ratios such as the debt to capital employed and total liabilities to total assets
• Profitability ratios such as sales growth, gross profit margin, gross profit to sales, operating profit to sales, net profit margin, selling and admin expenses to sales, return on assets and return on capital employed
• Efficiency ratios such as number of debtors days, creditors days, inventory days, inventory turnover to cost of sales, fixed asset turnover, cash conversion days
• Shareholder information such as earnings per share, dividends per share, price earnings ratio, earnings yield, dividend yield, dividend cover

13.NOTES:

• EMBEDDED KNOWLEDGE

A demonstrated understanding of:

The terminology relating to the Financial Markets and instruments

• CRITICAL CROSS-FIELD AND DEVELOPMENTAL OUTCOMES

The ability to:

• Collect, analyse, organise and critically evaluate information. For example, a great deal of information about an organisation's profitability, viability, and management effectiveness can be gathered through critically analysing information available in their financial statements, and conclusions based on such analysis can be of value to investors.
• Communicate effectively using visual, mathematical and / or language skills in the modes of oral and / or written persuasion. For example, mathematical skills are essential in the analysis of figures.
• Use science and technology effectively and critically, showing responsibility towards the environment and health of others. For example, calculations can be performed with greater ease and rapidity using computer technology.
• Demonstrate an understanding of the world as a set of interrelated systems by recognizing that problem-solving contexts do not exist in isolation. For example, the various ratios and calculations performed during financial analysis can be related meaningfully to one another to draw relevant business conclusions about the organisation.

• TERMINOLOGY

Terminology relating to the Financial Markets can be found in "Who owns Whom's Dictionary of Stock Market Terms" published by Who owns Whom / PSG Online in 2001. ISBN 1-919850-04-X

• VALUES

The use of tasks and materials in the learning event plan should not discriminate against learners on any grounds proscribed in the Bill of Rights and should promote the orientations outlined in the critical cross-field outcomes.

• DOMAIN:

Financial Markets

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