Analyzing Financial Statements

Question 1

What is EBIT?

Answer 1

Earnings Before Interest & Tax (EBIT)

Revenue - Cost of Goods Sold = Gross profit -Selling & Operating Expenses - Amortization Expense (Depreciation) = Operating Profit

Question 2

What is EBT?

Answer 2

Earnings Before Taxes (EBT)

Operating Profit - Interest Expense

Question 3

What is EAT?

Answer 3

Earnings After Taxes (EAT)

Operating Profit - Income Taxes

Question 4

What is NAFC?

Answer 4

Net Earnings Available for Common Shareholders (NAFC)

Operating Profit- Preferred Dividends = Net Profit

Question 5

What does each stand for?

EBIT
EBT
EAT
NAFC

Answer 5

Earnings Before Interest and Tax (EBIT)

Earnings Before Taxes (EBT)

Earnings After Taxes (EAT)

Net earnings Available For Common Shareholders (NAFC)

Question 6

What are the 3 Valuation Ratios? (Income Statement)

Answer 6

Earnings per Share Ratio (EPS)
Dividend Payout Ratio
Price-Earnings Ratio (P/E Ratio)

Question 7

What are Net Assets?

Answer 7

Assets - Liabilities

Question 8

What are the 2 Valuations? (Balance Sheet)

Answer 8

Working Capital

Book Value/ Share

Question 9

What are the formulas for the 2 Balance Sheet Valuations?

Answer 9

Working Capital:

CURRENT ASSETS - CURRENT LIABILITIES

Book Value/Share:

Total Shareholders’ Equity – Preferred Stock Book Value/ # of Common Shares

OR

Common Stock + Retained Earnings/ # of Common Shares

Question 10

What are the 3 Ratio Formulas for the Income Statement?

Answer 10

EPS = EAT – Preferred Dividends
# of Common Shares

Payout Ratio = Dividend per share (Common)
Earnings per share

P/E Ratio = Price per Share (Market Value)
Earnings per Share

Question 11

What is the Price-Earnings Ratio?

Answer 11

P/E Ratio = Common Stock Price per Share (Market Value)

Earnings per Share

Question 12

What is the Dividend Payout Ratio?

Answer 12

Payout Ratio = Dividend per Common Share

Earnings per share

Question 13

What is the Earnings Per Share Ratio?

Answer 13

EPS = EAT – Preferred Dividends

# of Common Shares

Question 14

What is an Income Statement?

Answer 14

measures how a company performed during a fiscal year

Question 15

What is Solvency and Insolvency?

Answer 15

Solvency = ability to pay off liabilities within a year 
Insolvency = inability to pay off liabilities within a year

Question 16

What is a Balance Sheet?

Answer 16

analyzes where the ASSETS, LIABILITIES & EQUITY stand at the end of a fiscal year

Question 17

What is a Statement of Retained Earnings (Shareholders Equity)?

Answer 17

measures the CHANGES to Retained Earnings for a fiscal year

Question 18

What is a Statement of Cashflows?

Answer 18

analyzes how cash was MANAGED during a fiscal year (INFLOWS & OUTFLOWS)

Question 19

What is Gross Profit?

Answer 19

Revenue (Sales) - Cost of Goods Sold (Sales)

Question 20

What is Gross Profit Ratio?

Answer 20

Gross Profit/ Net Sales

Question 21

How is the Statement of Cashflow Organized?

Answer 21

Operating Activities

Investing Activities

Financing Activities

Question 22

What’s an example of Operating, Investing & Financing Activities?

Answer 22

Operating:

Changes in CURRENT ASSETS & CURRENT LIABILITIES

Investing:

CHANGES in CAPITAL ASSETS & INVESTMENTS

Financing:

Changes in LOANS & DIVIDENDS PAID

Question 23

is Amortization (Depreciation) Expense a Cashflow?

Answer 23

No, it’s not, it’s added back on to the cash flow statement