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In a ratio analysis report, why was stock level, creditors compared to revenue.
Eg in explaining liquidity, it says, stock levels have increased from 28% of sales to 33%.
Creditors have also increased more than proportionately to revenue, can you explain the importance of there relationship?
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Secondly is there anything like uncovered writing of options, i thought writing of options is a way of hedging in it self.
The answer says unless the option is hedged, writing options exposes the writer to a theoretical unlimited loss.You have not said which question you are referring to!!
As far as options are concerned, everything needed for the exam in relation to options (share options, foreign currency options, and interest rate options) is covered in my free lectures 🙂
Apologies for not been clear. In a ratio analysis report , how is revenue related to stock levels? And how is the creditor balance related to revenue?
Thank you.If revenue increases then the cost of sales will also increase, and therefore you would expect inventory levels to increase and payables to increase also.
When looking at ratios you would take inventory and a % of cost of sales, and payables as a % of cost of sales.
It will help you to watch the free Paper FA (was F3) lectures on ratio analysis.
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