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Financial information Analysis > Drivers of profitability > Flashcards

Drivers of profitability Flashcards

1
Q

what is PM formula

A

PM=NOPAT/SALES

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2
Q

What is ATO formulas

A 
ATO= SALES/NOA
ATO = SALES/(OA-OL)
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3
Q

What are financial liabilities

A

Borrowings from debtholders and issuers

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4
Q

What are financial assets

A

Invest in short-term securities or other interest-bearing paper and deposits

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5
Q

What are operating assets

A

Assets invested to produce products for sales

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6
Q

What are operating liabilities

A

Operating credit that suppliers offer to finance operating assets (non interest bearing)

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7
Q

What is first-level breakdown in the DuPont approach

A

ROE= ROA x EM

Net income/total assets x total assets/equity

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8
Q

What is the second-level breakdown for the DuPont approach

A

ROE = PM x ATO x EM

Net income/sales x sales/total assets x total assets/equity

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9
Q

What is another formula for the equity multiplier other than total assets/equity

A

1/(1- total debt ratio)

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10
Q

How to do variance analysis

A

4 ROE formulas

ROE0 = PM0 x ATO0 x EM0

ROE0’ = PM1 x ATO0 x EM0

ROE0” = PM1 x ATO1 x EM0

ROE1 = PM1 x ATO1 x EM1

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11
Q

What are the limitations for the Dupont approach

A

Less informative - doesn’t distinguish operating and finance items

Reflect only the positive effect of financial leverage on ROE

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12
Q

What is the reformulated balance sheet

A

NOA = NFO + OE

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13
Q

What is the modified DuPont approach

A

ROE = RNOA + (RNOA - NBC) x FLEV

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14
Q

What is ROE formula

A

Net income/ equity

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15
Q

What is RNOA formula

Return on net operating assets

A

NOPAT/NOA

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16
Q

What is NBC formula

Net borrowing costs

A

Net financial expenses after tax/NFO

17
Q

What is FLEV formula

Financial leverage

A

NFO/ equity

18
Q

Dupont approach what is the third level breakdown for PM

A 
Net sales
Less cost of goods sold
Less operating expenses
Less net interest expense
Less income tax

As a percentage of net sales and compare to year before

19
Q

What is the third level breakdown PM in dupont approach

A

Link to common sized income statements

PM = Net income/sales = (sales-COGS - Operating Expenses - Interest expense - TAX)/ Sales

Financial information Analysis (3 decks)

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