4a - Secs analysis Flashcards
(37 cards)
Difference between
- statement of financial position
-statement of P&L
-Statement of cash flows
balance sheet = snapshot of fin position at end of acc period - states what money comp has and where it came from
income statement - summarizes earnings and expenditure over acc period
P&L = revenue = recognised @ point of sale
cash flow - summary of payments and receipts over acc period
cash = recognized on payment/receipt
Balance sheet components
Top half : assets
- non current assets
- current assets
Bottom half : equity and liabilities
- capital and reserves
- non current liabilities
- current liabilities
non current assets + current assets = cap and reserves + non current liabilities + current liabilities
non current assets
LT >1 yr
assets intended to be used by bis for >1 yr
intangible non current assets:
- no phys substance
-expected to generate future rev
(eg. goodwill, TM, patents)
tangible non-current assets
- expected tog enerate future rev + physical substance
(e.g. land, property, pland and machinery)
- valued at NBV
non current investments - shares held for over>1 yr
includes investment in associat comp where share ownership is 20-50%. >50% =consolidates balance sheets
(increasing liq down from non current intangible to cash)
current assets
=assets held for conversion into cash
inventory (stock )
- raw mats, work in progress, finished goods
trade receivables (debtors)
=amount comp owed on fin. position date
- trade debtors
-pre payments
cash
top half of bal sheet =
assets
- non current ass
- current ass
- investments
(increasing liq down from non current intangible to cash)
liabilities
current
- owed by comp due within 1 year
–trade payables (creditors)
–accuals (expenses not yet invoiced)
- short term borrowing (e.g. overdraft )
non curent
- amount owed + payable >1yr
–LT bank loans
–bonds issued by comp
–provisions for doubtful debt
cap and reserves
bottom half of bal sheet -
equity and liabilities
- capital and reserves
- non current liabilities
- current liabilities
CAPITAL
share cap
-not distributable = NV of total shares in issue
share premium
-any XS above NV raised on isse (=MV-NV)
- can be issues to write off cost of issuance or to cover bonus issue
RESERVES- amount belonging to shareholders retained in company
- revaluation reserve
– not cash so cannot be distributed (must be sold to recognise) - recognises appreciation of value - retained earnings
–can be distributed to maintain divi in bad year
bonus issue
effect on balance sheet + market
share price down
share number up
NV remains same
share cap rises (NV of shares issues)
share prem falls (XS above NV raised)
rights issue effect on balance sheet
share cap up (refelcts NV of shares in issue)
share prem up (surplus raised in excess of NV)
stock split
divide a company’s shares, creating more shares and lowering the stock’s price
share price down
share number up
NV lowered
share cap remains same
share prem remains same
Total NV and total share prem remains the same - NV decreased compensate for decrease in share prem)
How to measure depreciation of tangible non current assets
recorded on balance sheet at NBV - net book val
NBV = (cost - residual val)/assets useful life
valuation of inventory
actual cost not always poss - can use cost flow assumption
value =lower of cost or net realised val
weighted avg (when inventory is drawn down proportionally e.g. gravel)
FIFO - first in first out
old inventory to be used first - e.g. perishables
statement of profits and loss (RGOPN)
REVENUE
- cost of sales (direct costs)
= GROSS PROFIT
- operating costs (indirect costs)
= OPERATING PROFIT (aka EBIT/EBIT)
- exceptional items (big 1 off)
-finance costs/income (interest)
= PROFIT BEFORE TAX
- corp tax payable
=NET INCOME
Turnover (revenue )
P&L statement
total income generated by selling goods/services
recognised @ point of sale
(includes cred purchases and sale)
recognition can be apportioned over long periods for LT contacts
cost of sales
PL
direct cost of goods sold
= (opening inventory + purchases or production ) - closing inventory
operating costs
PL
general/indirect costs
- disto, admin etc
capital vs revenue expenditure
cap expenditure = spent to buy non current assets
goes on balance sheet = cash down and non current up - total assets constant
revenue expenditure - reflected on P&L statement
e.g. wages, rent etc
statement of cash flows - DIRECT METHOD
recognizes cash on payment and receipt
OPERATING ACTIVITIES - recognizes CF generated from trading activities
~ cash receipts from customers
~(cash paid to suppliers/employees)
~(income taxes paid
NET CASH FROM OP ACTIVITIES
INVESTING ACTIVITIES - CF gen from trading of non current assets and investment inc
~interest received
~divi received
~proceeds on disposal of NCA
~(purchase of NCA)
NET CASH USED IN INVESTMENT ACTIVITIES
FINANCING ACTIVITIES - CF gen from issues debt and eq +other borrowing
~(eq divi paid)
~(debt repayment)
~proceeds on issue or bonds/eq
~bank loans raised
~increase/(decrease) in bank overdrafts
NET CASH FROM FINANCING ACTIVITIES
NET INCREASE/(DECREASE) IN CASH
direct meth = no depreciation and no payables/receivables
Equity cash flow (free cash flow to equity)
how much cash can be paid to eq shareholders pose expenses, reinvestment and debt repayment
excludes cash owed to lenders
Enterprise cash flow (free cash flow to the firm)
measure of profitability post expenses and reinvestments
comparable CF irrespective of cap structure
useful to compare and analyse fin.health
Statement of cash flows - INDIRECT METH
begins with OPERATING PROFIT from P&L statement
op profit = rev - sales - op costs = PBIT
- recognises rev @point of sale but CF recognised on payment/receipts - must reconcile net CF from op activities with this
- ADD NON CASH EXPENSES (e.g. depreciation) back to profits [as not outflow of cash]
REMOVE IMPACT OF MOVEMENT OF CURRENT ASSETS AND CURRENT LIABILITIES
- SUBTRACT: any increase in current assets or decrease in current liabilities
subtracted from profits [as increase profits but not cash]
-ADD: any decrease in currents assets or increase in current liabilities [as these reduce profit but dont decrease cash]
logicall think : reverse impact that non cash stuff has on P&L for cash flow
current ratio AKA
working cap ratio
current ratio = current assets / current liabilities
= near cash assets + inventory + trade receivables + cash / trade payables + acruals
want = >1
estimate of current solvency - higher = more solvent
estimates if current assets recoverable within 1 yr are sufficient to cove liabilities due within 1 yr
quick ratio
AKA acid test
quick = (current assets - inventory) / current liabilities
= receivables + cash / current liabilities
can you survive quickly?
adapted curren ratio to solve illiquidity of inventory
Financial gearing ratio %
interest bearing debt / equity *100
high gearing = greater risk to shareholder divi in downturn
operational gearing ratio (multiple)
(sales rev - variable cost) /PBIT
greater fixed costs as proportion of total costs = greater variation of profit with change in output
PBIT = rev - cost of sales - op costs
high op gearing = small change in rev = big change in profit
