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Flashcards in FINANCIAL ANALYSIS IV Deck (43):
1

GAAP financing cash flows

Dividends paid

2

GAAP operating cash flows

Taxes, interest paid, interest received and dividends received

3

IFRS operating/financing cash flows

Dividends paid and interest paid

4

IFRS operating/investing cash flows

Dividends received and interest received

5

IFRS operating cash flows

Taxes

6

Sustainable growth rate

(1-dividend payout ratio) * ROE

7

B.S. Inventory costs

purchase cost, conversion costs and other costs necessary to bring inventory to present location and condition

8

B.S. Period costs (inventory)

Abnormal waste, most storage costs, administrative and selling costs are expensed as incurred

9

IFRS inventory values

1. Lower of cost or net realizable value
2. Write-ups allowed = to previous write-down

10

GAAP inventory value

1. Lower of cost or market value
2. No subsequent write-up is allowed

11

Interest during construction (expense/capitalize)

Generally capitalized, and depreciated over useful life

12

Cost of internally developed intangible asset

Expensed

13

IFRS research/development costs

1. Research = expensed
2. Development = capitalized

14

GAAP research/development costs

Both are expensed

15

Revaluation IFRS

1. Permissible
2. If gain originally, bypass net income and go to equity.
3. If loss, hit net income. Revaluation gain will hit net income, any surplus goes to equity.

16

Revaluation GAAP

Not permissible

17

IFRS impairment

1. When carrying value > recoverable amount
2. Recoverable amount: greater of fair value - selling costs, or discounted cash flows
3. Loss recoveries permitted, but not above historical cost

18

GAAP impairment

1. Carrying value > undercounted future cash flows
2. Written down to fair value
3. Loss recoveries not allowed

19

Asset impairments

Result in losses on the income statement

20

Long-lived asset abandoned

Removed from balance sheet, loss recognized in that amount

21

Long-lived asset exchanged

Gain/loss based on carrying value vs. fair value (new or old asset, whichever you can tell)

22

Premium bond

Coupon rate > market yield. Amortized down to maturity where = face value.

23

Bonds redeemed before maturity

Difference between carrying and book value results in gain/loss.
1. GAAP: Unamortized cost included in gain/loss.
2. IFRS: Already included in book value.

24

Operating vs. finance lease

1. Finance lease keeps the asset and debt on the books
2. Operating lease does not

25

IFRS: finance lease

If substantially all rights and risks are transferred to the lease, finance

26

GAAP: finance lease

Any of the following criteria met:
1. Title is transferred at end of period
2. Bargain purchase option exists
3. Lease period is 75% or more of useful life
4. Present value of payments is 90% or more of fair value

27

Finance lease: cash flow treatment (lessee)

Expense = depreciation and interest
Operating outflow = interest payment
Financing outflow = principal payment

28

Operating lease: cash flow treatment (lessee)

Rental payment reported as expense, and operating cash outflow

29

Finance lease: lessor

Lease payments are CFO (interest) and CFF (principal)

Sales-type: profit at inception and interest over the life

Direct financing: interest income only

30

GAAP: Defined benefit (over and underfunded)

Reported on balance sheet
Overfunded = asset
Underfunded = liability

31

IFRS: Defined benefit

Firms remove unrecognized actuarial gains and losses from fund status. Does not represent reality

32

Capitalize - cash flow treatment

Cash outflow for capitalized item is reported in cash flow from investing (CFI)

33

Expense - cash flow treatment

Cash outflow from expense is reported in operating cash flows (CFO)

34

IFRS component depreciation

IFRS requires companies to have separate depreciation schedules for building/machinery.

35

GAAP component depreciation

Recommends, but does not require separate depreciation schedules.

36

Statutory vs. effective tax rate

Caused by permanent difference, like reinvesting earnings of a foreign subsidiary

37

LIFO reserve

Companies using GAAP LIFO must report

FIFO inventory - LIFO inventory

COGS (FIFO) = COGS(LIFO) - change in LIFO reserve

38

Characteristics of effective financial reporting system

1) transparency
2) consistency
3) comprehensiveness

39

Barriers to creating an effective financial reporting system

1) valuation
2) standard-setting approach
3) measurement

40

IFRS technological developments

Expensed until feasibility is determined, then capitalized

41

Inventory - use of different methods

Permitted, but must use the same method for similar assets.

42

Change in salvage value or useful life

Changes in depreciation in subsequent periods, but does not retroactively change accumulated depreciation.

43

Enterprise value

Market value of common stock + market value of debt - cash and short term securities