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International Macro > Financial Analysis > Flashcards

Financial Analysis Flashcards

1
Q

What does the balance sheet show?

A

Snapshot of company’s financial position at the end of the year

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2
Q

What is the balance sheet identity?

A

Assets=liabilities+stockholders equity

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3
Q

What is the equation for net working capital?

A

Net working capital/net current assets = current assets-current liabilities

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4
Q

What is the equation for net book value?

A

Net book value = acquisition cost-accumulated depreciation

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5
Q

What does the income statement show?

A

Shows firms revenues and expenses over a given time period

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6
Q

What is the equation for market capitalisation?

A

Market capitalisation = no. Of shares X market price per share

  • total value of shareholder equity
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7
Q

What is the equation for market value added?

A

MVA = market capitalisation- equity

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8
Q

What is the M/B or P/B ratio?

A

M/B = market value of equity / book value of equity
- shows how many times investors original investment has been multiplied

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9
Q

What is the equation for enterprise value?

A

Enterprise value = market value of equity + debt - cash

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10
Q

What are the drawbacks of market value performance measures?

A
  • reflect investors expectations about future performance (not current performance)
  • do not explain reasons underlying performance
  • limited to information on public companies
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11
Q

What so the equation for EVA?

A

EVA= residual income = (after-tax interest + net income) - ( cost of capital X capital )

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12
Q

What is after-tax interest + net income?

A

Net income company would have earned with all equity financing

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13
Q

What is the equation for total capitalisation?

A

Total capitalisation = long-term debt+shareholders equity

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14
Q

What is the equation for ROC?

A

ROC=after-tax interest + net income / total capital at start of the year

  • uses after-tax interest + net income which is net income available to all investors (debt and equity holders)
  • capital provided by debt and equity capital so this measure is appropriate
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15
Q

What is the equation for ROE?

A

ROE=net income / book value of equity at start of the year

  • uses only net income as we are only interested in return to equity holders
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16
Q

What is the equation for ROA?

A

ROA=after-tax interest + net income / total assets at the start of the year

  • uses income available to all investors as capital is financed by debt and equity and assets are financed by capital
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17
Q

What are the advantages of EVA and accounting rates of return?

A
  • reflect current performance and are not affected by expectations of future performance
  • can be calculated at the whole company,plant or division level (including private company)
18
Q

What are the limitations of EVA and accounting rates of return?

A
  • not all assets are accounted in the balance sheet
  • based on book value of assets (true value may be different)
19
Q

What is the equation for asset turnover?

A

Asset turnover = sales / total assets at start of the year

20
Q

What is the equation for profit margin?

A

Profit margin = net income / sales

21
Q

What is the equation for operating profit margin?

A

Operating profit margin = after tax interest + net income / sales

22
Q

What is the equation for inventory turnover?

A

Inventory turnover = cost of goods sold / investors at start of year

23
Q

What is the equation for inventory period?

A

Inventory period = inventory at start of year / daily cost of goods sold

24
Q

What is the equation for receivables turnover?

A

Receivables turnover = sales / receivables at start of year

25
Q

What is the equation for receivables period?

A

Receivables period = receivables at start of year / average daily sales

26
Q

What is the equation for the long-term debt ratio?

A

Long term debt ratio = long term debt / long term debt + equity

27
Q

What is the equation for the long term debt to equity ratio?

A

Long term debt to equity ratio = long term debt / equity

28
Q

What is the equation for the total debt ratio?

A

Total debt ratio = total liabilities/total assets

29
Q

What is the equation for the Times-Interest-Earned ratio?

A

Times-Interest-Earned ratio = EBIT / interest payments

30
Q

What is the equation for the cash coverage ratio?

A

Cash coverage ratio = EBIT + depreciation / interest payments

31
Q

What is the equation for the net working capital to total assets ratio?

A

Net working capital to total assets ratio = current assets - current liabilities / total assets

32
Q

What is the equation for the current ratio?

A

Current ratio = current assets / current liabilities

33
Q

What is the equation for the quick(acid test) ratio?

A

Quick ratio = cash + marketable securities + receivables / current liabilities

34
Q

What is the equation for the cash ratio?

A

Cash ratio = cash + marketable securities / current liabilities

35
Q

What are the strengths of ratio analysis?

A
  • direct users focus of attention
  • identify and highlight areas of good and bad performance
  • identify areas of significant change
  • help different users in decision making
36
Q

What are the limitations of ratio analysis?

A
  • lack of standard definitions
  • different formulas exist to calculate the same ratios
    Figures taken from the balance sheet may be unrepresentative
  • accounting police’s may differ
  • misinterpretation is possible
37
Q

What row acts were introduced to improve financial reporting reduce agency problem?

A
  • SOX 2002: aim was to improve accuracy of information reported
  • Dodd-Frank Wall Street reform and consumer protection act (2010):
38
Q

What are the market value performance measures?

A
  • market capitalisation
  • market value added
  • M/B
  • EVA
  • ROC
  • ROA
  • ROE
39
Q

What are the efficient measures?

A
  • asset turnover
  • profit margin
  • operating profit margin
  • inventory turnover
  • inventory period
  • receivables turnover
  • receivables period
40
Q

What are the debt ratios/leverage ratios?

A
  • long term debt ratio
  • long term debt to equity ratio
  • total debt ratio
  • TIE
  • cash coverage ratio
41
Q

What ratios are used to measure liquidity ?

A
  • net working capital to total assets ratio
  • current ratio
  • quick ratio
  • cash ratio

International Macro (12 decks)

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