Financial Reporting & Analysis (20%) Flashcards
(84 cards)
1
Q
Characteristics of a Coherent
Financial Reporting Framework
A
- Transparency
- Comprehensiveness
- Consistency
2
Q
Fundamental Characteristics of Financial Statements
A
U.S. GAAP
- Relevence
- Faithful Representation
IFRS
- Fair Presentation
- Going Concern
- Accrual Basis
- Consistency & Materiality
3
Q
Qualitative Characteristics of
Financial Statements in IFRS
A
- C omparability
- U nderstandability
- R elevance
- R eliability
(CURRy)
4
Q
Enhancing Characteristics of Financial Statements
A
- V erifyability
- C omparability
- U nderstandability
- T imeliness
5
Q
Elements of
Financial Statements
A
Balance Sheet
- Assets
- Liabilities
- Owners Equity
Income Statement
- Revenues
- Expenses
- Gains & Losses
6
Q
Factors that Contribute to Reliability in IFRS
A
- Substance over Form
- Faithful Representation
- Nutrality
- Prudence
- Completeness
(SUFFR’N-PC)
7
Q
Activity Ratios
A
- Receivables Turnover, DSO
- Inventory Turnover, DOH
- Payables Turnover, DOP
- Total Asset Turnover
- Fixed Asset Turnover
- Working Capital Turnover
8
Q
Receivables Turnover
A
Revenue
————————————
Average Receivables
9
Q
Days Sales Outstanding
DSO
A
365
————————————
Receivables Turnover
10
Q
Inventory Turnover
A
COGS
———————————
Average Inventory
- number of times invetory is sold or used in yr.
11
Q
Days of Inventory on Hand
DOH
A
365
———————————
Inventory Turnover
12
Q
Payables Turnover
A
Purchases
——————————
Average Payables
13
Q
Number of days of Payables
DOP
A
365
——————————
Payables Turnover
14
Q
Total Asset Turnover
A
Revenue
————————————
Average Total Assets
15
Q
Fixed Asset Turnover
A
Revenue
——————————————
Average Net Fixed Assets
- ppe net of depreciation
16
Q
Working Capital Turnover
A
Revenue
—————————————
Average Working Capital
working cap - ca-cl
17
Q
Liquidity Ratios
A
- Current Ratio
- Quick Ratio
- Cash Ratio
- Defensive Interval
- Cash Conversion Cycle
18
Q
Current Ratio
A
Current Assets
——————————
Current Liabilities
19
Q
Quick Ratio
(Acid Test)
A
Cash + Marketable Securities + Receivables
————————————————————————
Current Liabilities
20
Q
Cash Ratio
A
Cash + Marketable Securities
————————————————
Current Liabilities
21
Q
Defensive Interval
A
Cash + Marketable Securities + Receivables
———————————————————————
Average Daily Expenditures
- how many days can a company operate without having to access noncurrent assets.
22
Q
Cash Conversion Cycle
A
DSO + DOH - DOP
23
Q
Solvency Ratios
A
- Debt-to-Equity
- Debt-to-Capital
- Debt-to-Assets
- Financial Leverage
- Interest Coverage
- Fixed Charge Coverage
24
Q
Debt-to-Equity Ratio
A
Total Debt
———————
Total Equity
25
Debt-to-Capital Ratio
Total Debt
—————————————
Total Debt + Total Equity
26
Debt-to-Assets Ratio
(Debt Ratio)
Total Debt
———————
Total Assets
27
Financial Leverage Ratio
Average Total Assets
————————————
Average Total Equity
28
Interest Coverage Ratio
EBIT
——————————
Interest Payments
A ratio used to determine how easily a company can pay interest on outstanding debt.
29
Fixed Charge Coverage Ratio
EBIT + Lease Payments
————————————————————
Interest Payments + Lease Payments
* A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases.
30
Profitability Ratios
* Net Profit Margin
* Gross Profit Margin
* Operating Profit Margin
* Pretax Margin
* ROA
* Operating Return on Assets
* Return on Total Capital
* Return on Equity
* Return on Common Equity
31
Net Profit Margin
Net Income
———————
Revenue
32
Gross Profit Margin
Gross Profit
———————
Revenue
33
Operating Profit Margin
EBIT
——————
Revenue
34
Pretax Margin
EBT
——————
Revenue
35
Return on Assets
ROA
Net Income
————————————
Average Total Assets
or
Net Income + Interest Expense (1 - t)
———————————————————
Average Total Assets
36
Operating Return on Assets
EBIT
————————————
Average Total Assets
37
Return on Total Capital
ROTC
EBIT
————————————
Average Total Capital
38
Return on Common Equity
## Footnote
Net Income - Preferred Dividend
——————————————————
Average Common Equity
39
Performance Ratios
* Cash Flow-to-Revenue
* Cash Return-on-Assets
* Cash Return-on-Equity
* Cash-to-income
* Cash Flow Per Share
40
Cash Flow-to-Revenue Ratio
CFO
————————
Net Revenue
41
Cash Return-on-Assets Ratio
CFO
————————————
Average Total Assets
42
Cash Return-on-Equity Ratio
CFO
————————————
Average Total Equity
43
Cash-to-Income Ratio
CFO
——————————
Operating Income
44
Cash Flow Per Share
CFO - Preferred Dividends
———————————————
WASO
45
Coverage Ratios
* Debt Coverage Ratio
* Interest Coverage Ratio
* Reinvestment Ratio
* Debt Payment Ratio
* Dividend Payment Ratio
* Investing and Financing Ratio
46
Debt Coverage Ratio
CFO
——————
Total Debt
47
Interest Coverage Ratio
CFO + Interest Paid + Taxes Paid
——————————————————
Interest Paid
48
Reinvestment Ratio
CFO
—————————————————
Cash Paid for Long Term Assets
49
Debt Payment Ratio
CFO
——————————————————
Cash Long-Term Debt Repayment
50
Dividend Payment Ratio
CFO
————————
Dividends Paid
51
Investing and Financing Ratio
CFO
————————————————————————————
Cash Outflows from Investing and Financing Activities
52
Return on Equity
ROE
Net Income
————————————
Average Total Equity
53
Original DuPont Equation
ROE = ROA \* Financial Leverage
or
ROE = Profit Margin \* Asset Turnover \* Leverage Ratio
Net income Revenue Assets
——————— X —————— X —————
Revenue Assets Equity
(NRAE)
54
Extended DuPont Equation
ROE = Tax Burden \* Interest Burden \* EBIT Margin \*
Asset Turnover \* Financial Leverage
NI EBT EBIT Revenue Assets
——— X ——— X ————— X ————— X —————
EBT EBIT Revenue Assets Equity
(NeERAE)
55
Free Cash Flow to the Firm
FCFF
from CFO
CFO
- Fixed Captial Investment
+ Interest Expense(1 - t)
FCFF = N/I-NCC+int exp(1-t) -FCinv - WCinv
56
Free Cash Flow to the Firm
FCFF
from Net Income
Net Income
- Fixed Capital Investment
+ Interest Expense(1 - t)
+ Non-Cash Charges to Income
- Working Capital Investment
57
Free Cash Flow to Equity
FCFE
from CFO
CFO
- Fixed Capital Investment
+ Net Borrowing
58
Basic EPS
Net Income - Preferred Dividends
——————————————————
WASO
59
Diluted EPS
NI - Pref Div + Conv Debt Int(1 - t) + Conv Pref Div
————————————————————————————
WASO + Debt Shares + Pref Shares + Option Shares
60
Ending Inventory
Beginning Inventory + Purchases - COGS
61
FIFO from LIFO
FIFO Inv = LIFO Inv + LIFO Reserve
62
FIFO COGS
from
LIFO COGS
FIFO COGS = LIFO COGS - Change in LIFO Reserve
63
Deferred Taxes
Income Tax Expense = Tax Payable + ►DTL - ►DTA
64
Working Capital
Current Assets - Current Liabilities
65
CFO
Indirect Method
Net Income
- Cash Gains from Investing & Financing
+ Non-Cash Charges to Income (Dep,Amort)
- Non-Cash Components to Revenue
- Increases in Asset Accounts
+ Increases in Liability Accounts
66
1. Analyst gathered following:
* Net sales $4000
* dividends declared $170
* COGS $2000
* Inventory increase $100
* A/P increased by $300
* Cash expense $500
* Long term debt repayment - $250
* cash tax payment $200
* purchase of new equipment $300
4000 - Since no change in A/R
(2000)
(100) - use
300 - source of cash
(500) -
(200)
=1500.
* GAAP - dividends rcvd are CFO inflow, paid are financing outflow.
* All debt =CFF. equipment and land = CFI
67
The following data pertains to comp common size statements.
CA - 40%, Total debt - 40%, N/I - 16% , Total assets - $2,000, Sales - $1500, Total asset turnover ratio - .75
Company's after-tax return on common equity is closest to?
a. 15% b. 20%. c. 25%
return on common equity - N/I / avg equity
= .16(1500)/ (1-.4)(2000) = 20%
B. 20%.
68
In accounting the prior service costs refers to?
PV of increase in future pension benefit from change in terms of benefit plan.
69
Average Age of Assets
Accumulated Depreciation
————————————————
Annual Depreciation Expense
70
Fraud Triangle
* R ationalizations
* I ncentives
* O pportunities
(Blame it on Rio)
71
Beta
ß
Covariance [Asset,Market]
——————————————
Market Variance
72
What are extraordinary items?
unusual and infrequent items that are reported seperately, net of tax, a**fter net income from continuing operations. **
73
Impairment Loss Under IFRS
Carrying Value - Recoverable Amount
Recoverable Amount = The greater of the value in use or the fair value less costs to sell.
74
Price to Earnings Ratio
P/E
Dividend Payout Ratio
————————————
Required ROE - g
75
Total Comprehensive income?
Other comprehensive income?
* net income + other comprehensive income
* Loss and gains on available for sale securities and translation adjustments on foreign subsidies.
76
Net realizable value?
* IFRS for inventory
* Net realizable value = sales price - selling and completion costs
* if Net realizable value is less than balance sheet value of inventory, then you use it. And write down asset. You can also write up asset.
* done through a valuation allowance acc
*
77
Income tax expense =?
Valuation allowance?
* income tax expense = taxes payable + ►DTL - ►DTA
* reduction of deferred tax assets based on likelihood the assets will not be realized.
78
purchases
purchases = ending inventory - beginning inventory + COGS
79
tax burden ratio
Net income/EBT
EBT is pretax income
80
Interest burden ratio
EBT/EBIT
EBT = pretax income
higher = better
81
operating cash flow
operating cash flow/N/I
Less than 1, means you gots problems.
82
IOSCO?
## Footnote
The IOSCO is not a regulator of financial markets. To ensure consistent application of international financial standards, it is important to have uniform regulation and enforcement across national boundaries. IOSCO assists in attaining this goal of uniform regulation as well as cross-border cooperation in combating violations of securities and derivatives laws.
83
net profit margin
ROA/asset turnover
84
Financial leverage?
ROE/ROA
