Securities Analysis Flashcards
Basic balance sheet equation
Total Assets = Total Liabilities + Stockholders Equity
What’s Capital Surplus?
Amount paid by shareholders above par value for shares (aka paid-in capital or paid-in surplus)
Four components of stockholders equity?
- Preferred stock
- Common stock
- Capital surplus
- Retained earnings
What’s effect of declaring and paying a cash dividend?
Declaring: retained earnings reduce and current liabilities increase (reducing net working capital)
Paying: cash and current liabilities reduce in equal amount. No effect on net working capital.
What’s the effect of a stock dividend?
Only affects stockholders equity part of b/s: number of common increases, retained earnings decreases and capital surplus may be adjusted
Net working capital?
Total current assets MINUS total current liabilities
Current ratio?
Total current assets DIVIDED BY total current liabilities
Quick assets?
Current assets MINUS inventories
Acid test ratio?
Aka Quick Assets Ratio:
Quick assets DIVIDED BY total current liabilities
Cash assets ratio?
(Cash PLUS marketable securities) DIVIDED BY total current liabilities
Rank liquidity ratios from most stringent:
- Cash assets ratio
- Acid test / quick assets ratio
- Current ratio
How is cash flow calculated?
Net income / loss PLUS depreciation
Long-term capitalisation?
Long term liabilities PLUS
preferred stock PLUS
total value of common stock (par value PLUS capital surplus PLUS retained earnings)
Bond ratio?
Value of bonds DIVIDED BY
total long-term capitalisation
Preferred stock ratio?
Value of preferred stock DIVIDED BY
total long-term capitalisation
Common stock ratio?
(Par value of common stock PLUS capital surplus PLUS retained earnings) DIVIDED BY
total long-term capitalisation
What does highly leveraged mean?
High percentage of bonds outstanding relative to common and preferred stock
Debt to equity ratio?
(Bonds PLUS preferred stock) DIVIDED BY (par value of common PLUS capital surplus PLUS retained earnings)
What are coverage ratios?
Ability to meet obligations to bondholders and preferred stockholders
Bond interest coverage?
Ebit DIVIDED BY annual bond interest expense
Preferred dividend coverage?
Net income DIVIDED BY preferred dividend
Preferred dividend is par value of preferred MULTIPLIED by % dividend
Net tangible assets per bond?
(Total assets MINUS intangibles MINUS current liabilities) DIVIDED BY number of bonds
(Calculate this as Principal amount of outstanding bonds DIVIDED BY 1000)
Operating profit margin?
Operating income DIVIDED BY net sales
Net profit margin?
Net income (after interest and taxes) DIVIDED BY net sales
