-SQA-SCOTTISH QUALIFICATIONS AUTHORITY NATIONAL CERTIFICATE MODULE: UNIT SPECIFICATION GENERAL INFORMATION -Module Number- 6130032 -Session- 1992-93 -Superclass- AK -Title- FINANCIAL ANALYSIS AND INTERPRETATION (X 1 / 2 ) ------------------------------- -DESCRIPTION- GENERAL COMPETENCE FOR UNIT: Making decisions through the use of accounting techniques to analyse company performance and financial position, projecting cash flow and identifying break even point. OUTCOMES 1. use accounting ratios to assess performance and financial position; 2. identify sources of business finance; 3. prepare a cash flow projection; 4. use break even analysis to aid decision making. CREDIT VALUE: 0.5 NC Credit ACCESS STATEMENT: Access to this module would be at the discretion of the centre. It may however be beneficial if the candidate hand some competence in accounting. This may be evidenced by possession of NC Module 6130022 Preparing Final Accounts. ---------------------------------- For further information contact: Committee and Administration Unit, SQA, Hanover House, 24 Douglas Street, Glasgow G2 7NQ. This specification is distributed free to all approved centres. Additional copies may be purchased from SQA (Sales and Despatch section) at a cost of 1.50 (minimum order 5).
NATIONAL CERTIFICATE MODULE: UNIT SPECIFICATION STATEMENT OF STANDARDS UNIT NUMBER: 6130032 UNIT TITLE: FINANCIAL ANALYSIS AND INTERPRETATION Acceptable performance in this unit will be the satisfactory achievement of the standards set out in this part of the specification. All sections of the statement of standards are mandatory and cannot be altered without reference to SQA. OUTCOME 1. USE ACCOUNTING RATIOS TO ASSESS PERFORMANCE AND FINANCIAL POSITION PERFORMANCE CRITERIA (a) (b) (c) (d) The calculation of accounting ratios is accurate, in accordance with generally accepted formulae and accompanied by workings. Comments on company performance and financial position are coherent and consistent with the ratios calculated. Comments cover the liquidity and profitability of the company and the effectiveness of management in terms of asset utilisation. Measures suggested are relevant to the remediation of problems identified by the analysis. RANGE STATEMENT Analysis of the final accounts of a limited company. Accounting ratios: gross profit percentage, net profit percentage, return on capital employed; current ratio, stock turnover. EVIDENCE REQUIREMENTS Written evidence of the ability to use accounting ratios. This may take the form of: The analysis of the results of two consecutive years for a limited company involving the preparation for each year of the ratios listed in the range statement, comments on performance and financial position and accompanying suggestions to management. OR, 2
For the final accounts of two companies in the same trade, the preparation of ratios listed in the range statement for each company, comparison of their performance and financial position and suggested remedial action for problems identified in the analysis. OUTCOME 2. IDENTIFY SOURCES OF BUSINESS FINANCE PERFORMANCE CRITERIA (a) (b) (c) (d) Description of sources of finance is clear, accurate and comprehensive. Methods of finance are classified according to the term of the finance. Suitability of the methods of finance to the type of organisation seeking finance is considered. Accommodation of methods of finance is consistent with the business need. RANGE STATEMENT Terms of finance: short term (0-2 years approx) medium term (3-5 years) long term (6 years and over). Method of finance: overdraft, loan, debenture, grant, equity capital. Type of organisation: sole trader, partnership, private limited company, public limited company. Source: bank, owner/shareholder, central and local government. EVIDENCE REQUIREMENTS Written evidence of knowledge and understanding of sources of finance contained in the range statement and their suitability for given situations in accordance with the standards contained in the performance criteria. OUTCOME 3. PREPARE A CASH FLOW PROJECTION PERFORMANCE CRITERIA (a) (b) The statement is neat, legible, headed appropriately with a column for each month. The statement shows monthly subtotals for projected receipts and payments. 3
(c) (d) The scheduling of projected receipts and payments is accurate and reflects the length of credit allowance to customers/by suppliers. The calculation of opening and closing cash balance for each month is accurate and the balances are clearly displayed. RANGE STATEMENT Receipts from cash sales and credit customers. Payments to suppliers, for wages, expenses, acquisition of fixed assets, payment of interest/dividend. EVIDENCE REQUIREMENTS Preparation of a cash flow projection for a minimum period of three months, in accordance with the performance criteria and range statement. OUTCOME 4. USE BREAK-EVEN ANALYSIS TO AID DECISION MAKING PERFORMANCE CRITERIA (a) (b) (c) (e) The lines on the break-even chart are drawn accurately and the axes and lines labelled appropriately. The break-even point and projected profit or loss at different levels of output are correctly identified from the chart. The calculation of break-even point is accurate, with formulae and clear, logical workings provided. The calculation of projected profit or loss at different levels of output is accurate, with clear and logical workings provided. RANGE STATEMENT Break-even chart with lines for fixed cost, total cost and sales revenue. Break-even calculations based on contribution per unit. EVIDENCE REQUIREMENTS Derivation, both graphically and arithmetically of break even point and profit/loss at given levels of output, from data on sales, fixed costs and variable costs for a business. --------------------------------- 4
ASSESSMENT RECORDS In order to achieve this unit, candidates are required to present sufficient evidence that they have met all the performance criteria for each outcome within the range specified. Details of these requirements are given for each outcome. The assessment instruments used should follow the general guidance offered by the SQA assessment model and an integrative approach to assessment is encouraged. (See references at the end of support notes). Accurate records should be made of assessment instruments used showing how evidence is generated for each outcome and giving marking schemes and/or checklists, etc. Records of candidates' achievements should be kept. These records will be available for external verification. SPECIAL NEEDS In certain cases, modified outcomes and range statements can be proposed for certification. See references at end of Support Notes. Copyright SQA 1993 Please note that this publication may be reproduced in whole or in part for educational purposes provided that: (i) (ii) no profit is derived from the reproduction; if reproduced in part, the source is acknowledged. 5
NATIONAL CERTIFICATE MODULE: UNIT SPECIFICATION UNIT NUMBER 6130032 SUPPORT NOTES UNIT TITLE FINANCIAL ANALYSIS AND INTERPRETATION SUPPORT NOTES: This part of the unit specification is offered as guidance. None of the sections of the support notes is mandatory. NOTIONAL DESIGN LENGTH: SQA allocates a notional design length to a unit on the basis of time estimated for achievement of the stated standards by a candidate whose starting point is as described in the access statement. The notional design length for this unit is 20 hours. The use of notional design length for programme design and timetabling is advisory only. PURPOSE: SQA publishes summaries of NC units for easy reference, publicity purposes, centre handbooks, etc. The summary statement for this unit is as follows: This module will allow you to develop competences in decision making through the use of accounting techniques to analyse company performance and financial position, to project cash flow and to identify break even point. CONTENT/CONTEXT Corresponding to Outcomes 1-4: 1. Business Environment Need for in-depth analysis of business performance by managers and a variety of other users, the information requirements varying according to the user concerned. Accounting Techniques Calculating a range of ratios for different companies or for a number of years for the same company, preparing a report, identifying and commenting on differences between ratios of different companies or trends in the ratios of a company from one year to the next. Accounting Principles and Theory Absolute and relative measurements, distinction between profitability liquidity and asset utilisation. 6
2. Business Environment Finance required for a business to start up and grow, variety of sources of finance available, advantages and disadvantages of different sources. Accounting Principles and Theory Business finance, risk and gearing, cost of capital. 3. Business Environment Importance to the business of planning the cash flow, survival in the short term dependant on cash being available to meet short term commitments. Accounting Techniques Scheduling of projected cash receipts and payments on a monthly basis, incorporating extent of credit allowed to customers/by suppliers, inserting payments and receipts in cash flow statement, calculating projected opening and closing monthly cash balances. 4. Business Environment and Organisation Business objective to maximise profit, technique required to project profit or loss at alternative levels of activity and to predict break-even point. Accounting Techniques Drawing break-even charts, using formulae to calculate break even point and profit/loss at different levels of output. Accounting Principles and Theory Cost behaviour patterns, marginal costing, contribution, break-even analysis. APPROACHES TO GENERATING EVIDENCE General Instruments of Assessment should validly and reliably assess the outcomes and performance criteria of the module. In most cases, an assignment will be the most suitable instrument and it will be more appropriate for evidence to be generated throughout the unit, rather than at the end. Degree of Accuracy A small margin of error may be allowed in the assessment of each outcome. The number of errors allowed will depend upon the nature of the instrument and the significance of the errors but, as a broad rule of thumb, 2-3 errors per assignment could be regarded as acceptable. Time Allowed Adequate time should be allowed for the completion of each assignment, but a time limit should be imposed to simulate the pressures of the workplace. 7
Reassessment Where evidence of competence has not been demonstrated during the assessment, an element of reassessment will be required. It will depend upon individual circumstances as to whether reassessment is required in a small discrete area only or a complete reassessment is necessary. ASSESSMENT PROCEDURES Conditions of Assessment The recommended approach to the assessment of the outcomes is by use of assignments, delivered in the class under examination conditions, without the aid of notes or text books. Number of Assessment Events Whenever possible, assessment should be integrated. For example, Outcomes 1 and 2 might be combined for assessment purposes, with a description of appropriate sources of finance for a company forming part of the report as the company's performance and financial position. Timing of Assessment/Reassessment The most appropriate timing of initial assessment would appear to be immediately following the delivery of that portion of the module being assessed, with time allowed for remediation prior to reassessment. A bank of instruments should be prepared for each assessment point, so that each reassessment is based on a fresh instrument. Order of Assessment The order in which the outcomes are delivered and assessed does not require to be the same as that listed in the module, although in this case it would appear logical to follow the order laid down. RECOGNITIONMany SQA NC units are recognised for entry/recruitment purposes. For up-to-date information see the SQA guide 'Recognised and Recommended Groupings'. REFERENCES 1. Guidelines for Module Writers. 2. SQA's National Standards for Assessment and Verification. 3. For a fuller discussion on assessment issues, please refer to SQA's Guide to Assessment. 4. Procedures for special needs statements are set out in SQA's guide 'Students with Special Needs'. 8
Copyright SQA 1993 Please note that this publication may be reproduced in whole or in part for educational purposes provided that: (i) (ii) no profit is derived from the reproduction; if reproduced in part, the source is acknowledged. 9