Jefferies

Question 1

Return on Invested Capital

Answer 1

NOPAT/Invested Capital

Question 2

Enterprise Value

Answer 2

Enterprise Value is the value of a company’s core business operations to ALL of the investors in the company.

Simple Formula: EQ Value+Debt+Pref Stock+Non Controlling Interest-Cash

However during my studies at John Hopkins, we used a diferent formula in excel

(PV of Operations) +
*PV of FCF +
*PV of Continuing Value

(Non-Operating Assets)
* Excess Cash and Marketable Securites+
Illiquided Invested and unsolidated subsidaries

=Enterprise Value

Question 3

What are the three major financial statements?

Answer 3

1. Income Statement
2. Balance Sheet
3. Cash Flow Statement

Question 4

Common-Size Statements

Answer 4

Common-size statements allow analysts to compare a company’s performance with that of other firms to evaluate performance

Question 5

Vertical Common-Size Income Statement

Answer 5

Expresses all income statement items as a percentage of revenues

Question 6

Vertical Common-Size Balance Sheets

Answer 6

Express all balance sheet items as a percentage of Total Assets

Question 7

Cross-sectional analysis

Answer 7

Known as relative analysis, compares a specific metric for one company with the same metric towards another company

Question 8

Horizontial Common-Size

Answer 8

Horizontal common-size financial statements are often used to determine a trend with a company.

Dollar values are divided by their base year values

Question 9

Activity Ratios

Answer 9

Measures how productive a company is using its assets and how efficiently it performs its everyday operations

Question 10

Liquidity Ratios

Answer 10

Measures the comapny ability to meet its short-term cash requirements

Question 11

Solvency Ratios

Answer 11

Measure a company ability to meet long-term debt obligation

Question 12

Profitability Ratios

Answer 12

Measures a companies ability to generate and adequate return on invested capital

Question 13

Valuation

Answer 13

Measures the quantity of an asset or flow (earnings) associate with ownership of a specific claim

Question 14

Inventory Turnover Ratio

Answer 14

COGS/Avg. Inv

Question 15

Days of Inventory on Hand

Answer 15

365/Inventory Turnover

Question 16

Receivables Turnover

Answer 16

(Sales/Revenue)/Avg. Accounts Receivable

Question 17

Days of Sales Outstanding

Answer 17

365/Receivables Turnover

Question 18

Payable Turnover

Answer 18

Purchases/Avg. Trade Payables

Purchases= EI+COGS-Opening Inventory

Question 19

Number Days of Payable

Answer 19

365/Payable Turnover

Question 20

Working Capital Turnover

Answer 20

Revenue/Avg. Working Capital

Question 21

Fixed Asset Turnover

Answer 21

Revenue/Avg. Fixed Assets

Question 22

Total Asset Turnover

Answer 22

Revenue/ Avg. Total Assets

Question 23

WACC

Answer 23

Average Cost of Capital required by investors

rdwd(1-T)+wprp+were

Question 24

Terminal Value

Answer 24

Terminal Value is the estimated value of a company beyond the final year of the explicit forecast period in a DCF model

Perpetuity Approach
Applies a constant growth rate onto the forecasted cash flows of a company

(Final YR FCF)*(1+Terminal Growth Rate)/WACC-Terminal Growth Rate

or

Exit Multiple Approach

Final Year EBITDA*Exit Multiple

Question 25

Current Ratio

Answer 25

Current Assets/Current Liabilities

Question 26

Quick Ratio

Answer 26

Cash+ST Marketable Securities+Receivables/Current Liabilities

Question 27

Cash Conversion Cycle

Answer 27

Days of Inventory on Hand+Days of Sales Outstanding- Number of Days Payable

Question 28

Cash Ratio

Answer 28

Cash+ ST Marketable Securities/ Current Liabilities

Question 29

NOPAT

Answer 29

Net Operating Profit After Taxes Operating Profit (EBIT)*(1-Tax Rate)

Question 30

Listing Liquidity Ratio

Answer 30

1. Current Ratio 2. Quick Ratio 3. Cash Ratio 4. Defensive Interval Ratio

Question 31

Defensive Interval Ratio

Answer 31

Cash+ St Marketable Sec+Receivables/ Daily Cash Expenditures This ratio measures how long the company can continue to meet its daily expense requirements from its existing liquid assets without obtaining additional financing.

Question 32

List of Solvency Ratios

Answer 32

1. Debt-to-Assets 2. Debt-to-Capital 3. Debt-to-Equity 4. Financial Leverage 5. Debt-to-EBITDA Coverage Ratios 1. Interest Coverage 2. Fixed Charged Coverage

Question 33

EBITDA

Answer 33

Earnings, Before Interest, Taxes, Depreciation and Amortization EBIT(Operating Income)+ Depreciation & Amortization EBITDA is used to determine the total earning potential of a company. Its also used as a comparable tool to compare companies of different sizes and capital structures.

Question 34

List of Profitability Ratios

Answer 34

1. Gross Profit Margin (Gross Profit/Revenue) A high gross profit margin can be a reflection of high product prices (reflected in high revenues) and low product costs (reflected in low COGS) 2. Operating Profit Margin (Operating Profit/Revenue) An operating profit margin that is increasing at a higher rate thatn the gross profit margin indicates that the company has successfully controlled operating costs. 3. Pretax Margin (EBT/Revenue) 4. Net Profit Margin ( Net Profit/ Revenue) Net Profit Margin shows how much profit a company makes for every dollar it generates in revenue 5. Return on Assets (ROA) (Net Income/Avg. Total Assets) The higher the ROA, the greater the income generated by the company given its assets 6. Return on Equity (ROE) (Net Income/Avg. Total Equity) This ratio measures the rate of return earned by a company on its equity capital. Equity capital includes (minority equity, pref equity, and common equity).

Question 35

Dow Dupont ROE Decomposition

Answer 35

1 way= Net Income/ Avg. SE 2 way= ROA*Leverage (Net Income/Avg. Total Assets)*(Avg. Total Assets/Average SE) 3 way= Net Profit Margin* Asset Turnover*Financial Leverage 5 way= (Net Income/EBT)*Tax Burden* Interest Burden* EBIT Margin* Asset Turnover* Financial Leverage

Question 36

Valuation Ratios

Answer 36

1. Price to Earnings 2. Price to Cash Flow 3. Price to Sales 4. Price to Book Value (1. Price per share/Earnings Per Share)

Question 37

Key Elements of Value Creation

Answer 37

Increasing ROIC, & Increasing CashFlow and Revenue Growth,