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2022 - BAG > 3) Business Analysis > Flashcards

3) Business Analysis Flashcards

1
Q

what are the four decisions in the business cycle?

A

financing
investing
operating
distribution

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2
Q

what do all the decisions in the cycle look at?

A

maximizing value as it is most important to the company

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3
Q

what is the objective of business operations?

A

to generate value

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4
Q

how can we maximize value?

A

by generating a return which exceeds the cost of capital

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5
Q

what does financial analysis do?

A

interprets FS to see how value is created and interprets them in a meaningful way

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6
Q

who do we do financial analysis for?

A

external stakeholders who use the FS to evaluate comp health and financial performance

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7
Q

what do internal constituents use FS for?

A

use it as a monitoring tool to see if comp is managing finances and meet its objectives

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8
Q

what is Du Pont analysis good for?

A

helps us see what the issues are within the company / gives direction for what we should be looking at / company performance

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9
Q

three metrics in Du Pont?

A
  • operating margin
  • asset efficiency
  • leverage
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10
Q

ROE formula?

A

NP/sales x sales/assets x assets/equity = NP/equity

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11
Q

what is comparative FS analysis?

A

direct comparison of current statements to numerous prior year statements to detect any trends

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12
Q

what is index analysis?

A
  • comparing FS figures using a base year
  • helps with removing size to distort view.
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13
Q

what is common size analysis?

A

uses something common for every line item and usually uses total sales (everything shown as % of sales)

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14
Q

relationship between debt and leverage?

A

more debt = more leverage = can lever their returns upwards - more risk, more return

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15
Q

debt ratio?

A

total debt / total assets

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16
Q

times interest earned?

A

PBIT or CGFO / interest expense

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17
Q

gross margin?

A

gross profit / sales

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18
Q

operating margin?

A

op profit / sales

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19
Q

net margin?

A

net profit / sales

20
Q

return on assets/equity?

A

net profit / av total assets or equity

21
Q

which companies are profitability ratios good for?

A

high volume companies – small changes in margin = big diff

22
Q

inventory turnover ratio?

A

av inv / COS x 365 days

23
Q

average collection period ratio?

A

av accs receivable / credit sales x 365

24
Q

settlement period ratio?

A

av accs payable / COS x 365

25
Q

operating cycle?

A

inventory turnover + average collection period - settlement period
(must be positive; are we getting money back in time to pay our creditors)
* important for retail

26
Q

fixed asset turnover ratio?

A

sales / av fixed assets

27
Q

total asset turnover ratio?

A

revenue / av total assets

28
Q

cash conversion ratio?

A

CGFO (excl dividends paid) / NP after tax
(close to 1 as possible)

29
Q

free cash flow ratio?

A

CGFO - inv to maintain ops

30
Q

price earnings ratio?

A

share price / EPS

31
Q

earnings yield ratio?

A

EPS / share price

32
Q

earnings per share formula?

A

NP / no of shares in issue

33
Q

dividend yield ratio?

A

div per share / share price x 100
- typically 2-3% for listed company

34
Q

dividend cover ratio?

A

EPS / divs per share

35
Q

limitations of ratio analysis?

A
  • creative accounting
  • non-standard acc policies
  • inflation
36
Q

what happens for 5) projection?

A

after analysing / interpreting:
- provide useful info
- project going forward, make decisions

37
Q

what is a loan covenant?

A

company gets loan which restricts how low its d/e ratio can be; too low = breach = immediate upfront payment required

38
Q

limitations of business analysis?

A
  • diversified firms hard to compare
  • subjectivity / judgment
  • seasonality / timing
  • insufficient info
  • inflation
39
Q

which specific external individuals is FS analysis relevant to?

A
  • equity investors
  • creditors
  • merger analysts
  • auditors
  • tax authorities
40
Q

which specific internal individuals is FS analysis relevant to?

A
  • mgmt
  • employees
41
Q

which ratios look at risk?

A
  • liquidity
  • leverage
42
Q

which ratios look at return?

A
  • profitability
  • efficiency
  • cash flow
  • market
43
Q

what are the liquidity ratios?

A
  • acid test
  • current
44
Q

what are the leverage ratios?

A
  • debt / debt-equity
  • times interest earned
45
Q

what are the profitability ratios?

A
  • margins (gross, op, net)
  • return on A/E
46
Q

what are the asset efficiency ratios?

A
  • operating cycle ratios
  • asset turnover
47
Q

what are the market ratios?

A
  • dividends ratios
  • earnings ratios

2022 - BAG (9 decks)

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