14 -Company Analysis Flashcards
What 3 items are analyzed in the Statement of Comprehensive Income?
- Revenue
- Operating Costs
- Dividend Record
What does the Statement of Financial Position tell an analyst?
The capital structure (amount of debt, when debt matures, retractable or convertible securities, warrants/options). And the effect of Leverage.
How is a trend analyzed?
Trend ratio (Take a base year’s EPS and divide later years’ EPS by that #)
What four types of ratios are used in company analysis?
- Liquidity
- Risk analysis
- Operating performance
- Value
What are two liquidity ratios and what do they measure?
- Working capital / current
- Quick ratio (acid test)
Turn assets into $ to meet short term obligations (current assets vs current liabilities)
What are 4 risk analysis ratios?
- Asset coverage (tangible assets per $1k outstanding debt) +
- Debt/Equity -
- Cash flow/total debt outstnding +
- Interest coverage +
What are 4 Operating Performance ratios?
- Gross profit margin
- Net profit margin
- Net (after tax) ROE
- Inventory Turnover (cost of sales / inventory)
What are 5 value ratios?
- % dividend payout
- EPS
- Dividend yield
- Price-Earnings ratio
- Equity value per common share
What four factors are used to measure Preferred Share investment quality?
- Preferred dividend coverage
- Equity per Preferred Share
- Record of continuous dividend payments
- Independent credit assessment
What 2 factors should be analyzed when considering convertible preferred shares?
- Is the common stock’s outlook good?
2. Is the life of the conversion privilege long enough?
How would increasing current liabilities affect the working capital ratio and how would it affect the asset coverage ratio?
Decrease the ratios (larger denominator in current; smaller numerator in Asset coverage)
What does a high vs low interest coverage ratio indicate?
Higher ratio means a company can more easily pay off interest obligations with profits.
What industry does not need a high interest coverage ratio, and what industry needs a high ratio?
Utility companies are fine with lower ratio
Retail needs high ratio due to volatile profits
