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Financial Accounting > Cash flow statement: key ratios > Flashcards

Cash flow statement: key ratios Flashcards

1
Q

Name key ratio: Profitability analysis (with the statement of cash flows)

A

Cash flow margin: Net cash from operating activities (=net cash flow) / revenues

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2
Q

Key profitability return ratios

Name key ratios: accounting-oriented profitability analysis (shareholder perspective)

A

Return of Equity (RoE): Net profit / equity

Return on assets (RoA): Net profit / total assets

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3
Q

Return of Equity

A

Return of Equity (RoE): net profit / equity

  • How much income is earned for the shareholders on their invested capital
  • Companys target: generating a return that corresponds to the interest rate on capital markets plus an industry-dependent risk premium (5-10%)
  • Given constant profits -> RoE increases the lower level of equity employed (leverage effect)
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4
Q

Return on assets

A

Return on assets (RoA): net profit / total assets

  • measures how profitabley a firm uses its assets
  • alternative numbers: EBT, EBIT, EBITDA
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5
Q

Name key ratios: Accounting-oriented profitability analysis (investor perspective)

A

Return on Investment (RoI): EBIT / total capital

Return on Capital employed (RoCE): EBIT (or net profit) / Capital employed

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6
Q

Return on Investment

A

Return on Investment (RoI): EBIT / total capital

  • interest on the total capital used
  • Generally used as a starting point for all further analysis using profitability indicators
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7
Q

Return on Capital employed

A

Return on Capital employed (RoCE): EBIT (or net profit) / Capital employed

  • Definition Capital employed: “Capital necessary to run business” - simplified: Total assets- current liabilities (alternative: Fixed assets, necessary for operations + working capital)

> > > Measures how much a firm earns on longterm external financing
Problem: indicator based on residual book values -> returns would always increase over time

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8
Q

Name key ratios: IFRS (diluted) earnings per share

A

(Basic) Earnings per share (EPS): net profit - preferred dividends / weighted average of total common shares outstanding

(Diluted) Earnings per Share (EPS): net profit - preferred dividends + interest expenses for convertible bonds (t-1) / weighted average of total common shares outstanding + converted shares

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9
Q

(Basic) Earnings per Share

A

(Basic) Earnings per Share (EPS): net profit - preferred dividends / weighted average of total common shares outstanding

  • most often used to describe a companys performance over time
  • basics of company evaluation
  • Calculation depends on the regulation in the accounting standards
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10
Q

(Diluted) Earnings per Share

A

(Diluted) Earnings per Share (EPS): net profit - preferred dividends + interest expenses for convertible bonds (t-1) / weighted average of total common shares outstanding + converted shares

  • takes into consideration the potential impact of corporate actions (e.g. capital increases) and/or stock option plans
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11
Q

Name key ratios: Market oriented profitability analysis (shareholders perspective)

A

Return to Shareholders (RtS): (year-end closing price - prior year-end closing price + dividend per share) x 100 / prior year-end closing price

Market to book ratio (= price to book ratio): Market capitalization (= Total common shares outstanding x price oer share) / equity

Price earnings ratio: Price per share / (Diluted) earnings per share

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12
Q

Return to Shareholders

A

Return to Shareholders (RtS): (year-end closing price - prior year-end closing price + dividend per share) x 100 / prior year-end closing price

  • Shows the (theoretical) return a shareholder earned on the period by dividens + change of the share price
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13
Q

Market to book ratio

A

Market to book ratio (= price to book ratio): Market capitalization (= total common shares outstanding x price per share) / equity

  • lower market to book value indicates a company is valued low (ratio > 1 -> shareholder pays a premium for the positive prospects)
  • market capitalization also reflects expectations for the companys growth
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14
Q

Price earnings ratio

A

Price earnings ratio: Price per share / (Diluted) Earnings per share

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15
Q

Name key ratios: Market-oriented profitability analysis (investor perspective)

A

Market value multiples:

Net valuation: Market value of equity / EBT

Gross valuation:
Earnings-oriented: Market value of the entity / EBIT
Cash flow-oriented: Market value of the entity / EBITDA

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16
Q

Net valuation

A

Net valuation: Market value of equity / EBT

Market value of equity = price per share x number of common shares outstanding

17
Q

Gross valuation (earnings-oriented)

A

Gross valuation - earnings-oriented: Market value of the entity / EBIT

Market value of the entity = Market value of equity + net financial debt

18
Q

Gross valuation (cash-flow oriented)

A

Gross valuation - cash-flow-oriented: Market value of the entity / EBITDA

  • e.g. used in startups
  • Market value of the entity: Market value of equity + net financial debt
19
Q

Key ratios: Turnover

A

Capital turnover: revenues / total capital

Equity turnover: revenues / equity

  • Company with an equal return on revenues but a lower ratio of revenues to total capital -> would generate lower profits (due to higher fixed costs + capital lock-up costs)

> > > The higher the ratio, the lower the amount of capital required (due to shorter pre-financing period)

20
Q

Name key market oriented share ratios

A

Dividend per share: Dividend paid / Common shares outstanding

Dividend yield: Dividend per share x 100 / price per share

21
Q

Dividend per share

A

Dividend per share: Dividend paid / common shares outstanding

  • comparing the dividend per share to its actual share price -> interest can be compared to other peer group companies -> evaluating a companys attractiveness
22
Q

Dividend yield

A

Dividend yield: Dividend per share x 100 / price per share

  • shows the effective interest rate for the capital invested in shares
  • Important also for comparisons with other forms of investment, e.g. bonds
    - ! dividend payments are much less certain than coupon payments for bonds

Financial Accounting (7 decks)

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