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Equity > LM 5: Company Analysis: Past & Present > Flashcards

LM 5: Company Analysis: Past & Present Flashcards

1
Q

What are the 3 parts to a company analysis?

A
  1. Company analysis: past and present
  2. industry and competitive analysis
  3. Company analysis: forecasting
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2
Q

What 8 factors should an analyst consider when initiating coverage of a company? FRCIFVER

A
  1. front matter
  2. recommendation
  3. company description
  4. industry overview & competitive positioning
  5. financial analysis & modeling
  6. valuation
  7. ESG considerations
  8. Risks
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3
Q

What 3 things should be covered in the front matter when initiating coverage of a company? IAL

A
  1. issuer name
  2. analyst recommendation
  3. legally required disclosures
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4
Q

What 2 things should be covered in the recommendation when initiating coverage of a company? AS

A
  1. analyst recommendation
  2. summary of key factors supporting recommendation
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5
Q

What 2 things should be covered in the company description when initiating coverage of a company? DE

A
  1. discussion of issuer business model
  2. explanatory charts & figures
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6
Q

What 4 things should be covered in the industry overview & competitive position when initiating coverage of a company? ICPE

A
  1. industry size, growth, profitability
  2. competitive analysis such as porter 5 forces
  3. PESTLE analysis of external industry influences
  4. Evaluation of company’s position and strategy in industry
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7
Q

What 4 things should be covered in the financial analysis & model when initiating coverage of a company? EEFH

A
  1. evaluation of factors driving revenues, cost, profitability, and cash flows
  2. evaluation of company sources and uses of capital
  3. forecasts of key drivers and a supporting discussion
  4. historical and forecasted financial statements
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8
Q

What 2 things should be covered in the valuation when initiating coverage of a company? VD

A
  1. valuation estimate and price target.
  2. discussion of key inputs and scenario/sensitivity analysis
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9
Q

What 3 things should be covered in the ESG Considerations when initiating coverage of a company? EOE

A
  1. evaluation of ESG indicators and risks
  2. ownership structure and management composition
  3. executive compensation
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10
Q

Whats 1 thing should be covered in the risks when initiating coverage of a company? E

A
  1. evaluation of material risks and discussion of their potential impact
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11
Q

What 5 factors should an analyst consider when following up coverage of a company after the initial coverage? FRAVR

A
  1. front matter
  2. recommendation
  3. analysis of new information
  4. valuation
  5. risks
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12
Q

What are the 5 elements of a company’s business model? PCSPS

A
  1. product or service (what does firm sell?)
  2. customer (who do they sell to?)
  3. sales channels (how do they acquire and deliver product?)
  4. price (payment terms and how much they charge?)
  5. suppliers and partners (who do they buy/rely upon?)
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13
Q

What are the 4 sources of information analysts can draw from to determine company business model? IPPP

A
  1. issuer sources
  2. public third party sources
  3. proprietary third party sources
  4. proprietary primary research
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14
Q

What are 2 examples of issuer sources? RE

A
  1. regulatory filings
  2. earnings call / investor presentation
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15
Q

What are 2 examples of public third party sources? EN

A
  1. economic indications
  2. news publications (general/ industry specific news publications)
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16
Q

What are 2 examples of proprietary third-party sources? RA

A
  1. reports prepared by equity or credit rating agency
  2. analysis from industry focused consultancies
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17
Q

What are 2 examples of proprietary primary research? SI

A
  1. surveys, studies commissioned by analyst
  2. industry experts
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18
Q

What are 3 ways to organize and classify operating costs, describe them? BNF

A
  1. behavior with output (fixed or variable)
  2. nature (what cost has been incurred eg. raw materials, rent, compensation)
  3. function (costs purpose eg. COGS, R&D, depreciation/amortization)
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19
Q

How does IFRS and US GAAP require issuer to group operating costs?

A

by either nature or function

20
Q

What is the difference between depreciation and amortization?

A

depreciation is for tangible assets and amortization is for intangible assets

21
Q

What happens with depreciation/ amortization on the statement of cash flows?

A

they get added back to net income when calculating CFO

22
Q

Which cash flow activity statement does IFRS require you to report income taxes and interest payments?

A

income taxes: operating

interest payments: operating or financing

23
Q

Which cash flow activity statement does US GAAP require you to report income taxes and interest payments?

A

income taxes: operating

interest payments: operating

24
Q

What is the formula for operating profit?

A

operating profit = [ Q * (P - VC)] - FC

Q = units company sells
P = price per unit
VC = variable costs
FC = fixed costs

25
Q

What is the formula for contribution margin derived from operating profit?

A

(P -VC)

P = price per unit
VC = variable costs

26
Q

What is the degree of operating leverage (DOL) formula?

A

DOL = % change operating profit / % change in sales

27
Q

What is gross margin formula?

A

gross profit / revenue

28
Q

What is EBITDA Margin formula?

A

EBITDA / revenue

29
Q

What is operating profit / EBIT margin formula?

A

Operating Profit (EBIT) / Revenue

30
Q

What is economies of scale?

A

costs reductions that occur as production increases. measure with gross margin

gross margin = gross profit / net sales

31
Q

What is economies of scope?

A

when company spreads its fixed costs over various product lines / business segments (eg. coke, coke zero)

32
Q

What is total working capital formula?

A

total working capital = current assets - current liabilities

33
Q

What is cash conversion cycle formula?

A

cash conversion cycle = DOH + DSO - DPO

DOH = days of inventory on hand
DSO = days of sales outstanding
DPO = payables outstanding

34
Q

What is the relationship between working capital and cash conversion cycle?

A

the higher the working capital the higher/longer the cash conversion cycle

35
Q

When does a company have pricing power?

A

when it is able to increase prices without negatively affecting its sales volume.

36
Q

What is degree of financial leverage formula?

A

DFL = % change net income / % change operating income

37
Q

What are the 2 formulas for degrees of total leverage?

A

DTL = degree of financial leverage * degree of operating leverage

DTL = % change in net income / % change in sales

DFL = % change in net income / % change in operating income

DOL = % change in operating income / % change in sales

38
Q

What is ROE formula?

A

net income / average shareholders equity

39
Q

What is the 2 formula ROE?

A

ROA * Leverage

ROA = net income/average total assets

Leverage = average total assets/ average shareholders equity

40
Q

What is DuPont Analysis?

A

formula that breaks up a company’s ROE into multiple ratios to determine a company’s strengths and weaknesses.

41
Q

What is ROE formula broken into 3 ratios?

A

ROE = (net income / revenue) net profit margin * (revenue / average total assets) total asset turnover * (average total assets / average shareholders equity) leverage

41
Q

What is ROE formula broken into 5 ratios?

A

ROE = tax burden * interest burden * EBIT margin * total asset turnover * leverage

42
Q

What is formula for tax burden vs interest burden?

A

Tax burden = net income / EBT

Interest burden = EBT / EBIT

43
Q

What is EBIT margin and Total Asset turnover formula?

A

EBIT Margin = EBIT / Revenue

Total asset turnover = Revenue / average total assets

44
Q

What is financial leverage formula?

A

average total assets / average shareholders equity

45
Q

What is the first step in reviewing a company’s capital investment?

A

determine the major sources and uses of cash

Equity (8 decks)

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