Financial Statements Study Session #7 Flashcards Preview

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Flashcards in Financial Statements Study Session #7 Deck (52):
1

3 Types of cash flow activities

Operating Activity
Investing Activity
Financing Activity

2

Cash Flow from Operating Activity

consists of inflows/outflows of cash resulting from transactions that affect a firms net income.

GAAP
In Out

Cash from Customers Cash paid to employees/suppliers
Interest/Dividends Received Cash paid for other expenses
Sale proceeds from trading Securities Acquisition of trading securities
Interest paid
Taxes paid

3

Cash Flow from Investing Activity

consists of inflows/outflows of cash resulting from the acquisition or disposal of long-term assets and certain investments.

GAAP
In Out
Sale proceeds from fixed assets Acquisition of fixed assets
Sale proceeds from debt/equity investments Acquisitions of debt/equity instruments
Principal rec'd from loans to others Loans made to others

4

Cash Flow from Financing Activity

consists of inflows/outflows of cash resulting from transactions affecting a firms capital structure.

GAAP
In Out
Principal amount of debt issued Principal paid on debt
Proceeds from issuing equity Payments to reacquire stock
Dividends paid to shareholders

5

Interest/Dividends Received under IFRS

Interest/Dividends Paid under IFRS

Interest and dividends received under IFRS may be reported as operating or investing activity.

Interest and dividends received under IFRS may be reported operating or financing activity.

6

Income taxes paid GAAP/IFRS (Cash Flow Statement)

Under GAAP all income taxes paid are under operating activities.
Under IFRS income taxes paid are operating activities unless the expense is associated with a investing or financing transaction.

7

Non-cash investing and financing activities (Cash Flow Statement)

not reported in the cash flow statement since they do not result in inflows/outflows of cash.

8

Direct Method (Operating Cash Flow)

XYZ Company

Cash Collections from Customers xx,xxx
Cash Paid to Suppliers (xx,xxx)
Cash Paid for operating Expense (xx,xxx)
Cash Paid for interest (xx,xxx)
Cash Paid for taxes (xx,xxx)
______
Operating Cash Flow xx,xxx

9

Indirect Method (Operating Cash Flow)

XYZ Company

Net Income xx,xxx
Adjust for non-cash items and
changes in working capital:
Depreciation and amortization xx,xxx
Deferred income taxes x,xxx
Change in A/R x,xxx
Change in A/P x,xxx
Change in Prepaid Exp. x,xxx
Change in Inventory x,xxx
Change in Accrued Liabilities x,xxx
_____
Operating Cash Flow

10

Calculate Cash Paid for New Asset (Investing Activity)

=Ending Gross Assets + grow cost of old assets sold - beginning gross assets

11

Calculate Cash from an asset sold (Investing Activity)

=book value of the asset + gain (or - loss) on sale

12

Calculate Cash Paid to Suppliers (Direct Method)

=COGS +/- change in inventory +/- change in A/P

13

Determine Beginning A/R, Ending A/R, Sales, Cash Collections (Direct Method)

Ending A/R = Beginning A/R + Sales - Cash Collections
'
If you have and of the 3, solve for the 4th.

14

Calculate Free Cash Flow to Firm (FCFF)

=CFO + [1 x (1-interest rate)] - FCInv

where FCInc = Fixed Capital Investments (net)

15

Calculate Free Cash Flow to Equity (FCFE)

=CFO-FCInv+Net Borrowing

Net borrowing = debt issued - debt repaid

16

Common Size (Cash Flow Statement)

items listed as percentage of revenue

or

each inflow is expressed as a percentage of total inflows and each outflow is expressed as a percentage of total outflows

17

Calculate Cash Received From Customers

= Revenue +/- Change in A/R

18

Common Size (Balance Sheet)

=balance sheet/total assets

19

Receivables turnover

=annual sales/average receivables

20

Days of sales outstanding

=365/Receivables turnover

21

Inventory turnover

=COGS/Average Inventory

22

Days of inventory on hand

=365/Inventory turnover

23

Payables turnover

=purchases/average trades payable

24

Number of days of payables

=365/payables turnover ratio

25

Total asset turnover

=revenue/average total sales

26

Fixed asset turnover

=revenue/average net fixed assets

27

Working capital turnover

=revenue/average working capital

28

Current ratio (liquidity)

=current assets/current liabilities

29

Quick ratio (liquidity)

=Cash+marketable securities+receivables/current liabilities

30

Cash ratio (liquidity)

=Cash+marketable securities/current liabilities

31

Defensive interval (liquidity)

=Cash+marketable securities+receivables/avg. daily expenditures

32

Cash conversion cycle (liquidity)

=Days sales outstanding+days of inventory on hand-number of days of payables

33

Debt-to-equity (solvency)

=total debt/total shareholders equity

34

Debt-to-capital (solvency)

=total debt/total debt+shareholders equity

35

Financial leverage (solvency)

=average total assets/average total equity

36

Interest coverage (solvency)

=EBIT/interest expense

37

Fixed charge coverage (solvency)

=EBIT+lease payments/interest expense + lease payments

38

Net profit margin (profitability)

=net income/revenue

39

Total Capital

=long term debt+short term debt+ common and preferred equity

or

= total assets

40

Gross profit margin (profitbility)

=gross profit/revenue

41

Operating profit margin (profitability)

=EBIT/revenue

42

Pretax margin (profitability)

=EBT/revenue

43

Return on assets (ROA)

= net income/average total assets

or

=net income+interest expense(1-tax rate)/avg. total assets

44

Return on total capital (ROTC)

=EBIT/Avg. total capital

45

Dupont system of analysis

an approach used to analyze ROE.

Original approach or extended (5-way) DuPont equation

46

a

s

47

Retention Rate

=net income available to common-dividends/net income availible to common

=1-dividend payout ratio

48

Dividend Payout ratio

=dividends declared/net income available to common

49

Sustainable growth rate

g=RR x ROE

50

Business Segments

portion of a company that accounts for more than 10% of a company's revenues or assets.

51

Basic DuPont Equation

=(NI/Sales)(Sales/assets)(assets/equity)

52

Extended DuPont Equation

=(NI/EBT)(EBT/EBIT)(EBIT/Revenue)(Revenue/total assets)(total assets/total equity)