Fundamental analysis Flashcards
Cash accounting
Accounting method used often used by small biz or individuals.
Records payments on the date they are received or made.
Accrual accounting
Accounting method used by larger biz and companies that get audited.
Recognizes revenue on date of sale vs date of payment. Recognizes expenses in date of invoice bs date of payment.
GAAP
Generally Accepted Accounting Principles
Statements used to Analyze a company
Income Statement
Balance sheet
Statement of Changes to Retained Earnings.
Gross sales = ?
All invoices in merch recorded that year.
Billed, not collected
Returns =
Merch returned for credit
Formula for Net Sales
Gross Sales - returns
Cost of Goods Sold
Accounting value of goods sold.
Gross Margin =
AKA: Gross Profit Margin
Formula: Net Sales - Cost of Goods Sold
Operating Expenses
Money used to Operate the business:
Admin salaries
Rent
Advertising
Depreciation
Operating Margin =
AKA Operating income
Gross Margin minus operating Expenses
Non Operating Income
Income not derived from normal business of the company, like investments
Bond Interest Expense
Non-operating expense for a company.
Paid after operating expenses.
Net Income Before Tax=
Total Income minus Bond interest
Ratios used to measure profitability
- Operating Margin of profit
2. Net Profit Ratio
