CFA Accounting Flashcards
Difference between FCFF and FCFE
The FCFF method subtracts debt at the very end to arrive at the intrinsic value of equity, whereas the FCFE method integrates interest payments and net additions to debt to arrive at FCFE
Difference between equity analysis and credit analysis
Equity analysis usually places a greater emphasis on growth, whereas credit analysis usually places a greater emphasis on risks.
What are activity ratios?
Activity ratios measure how efficiently a company performs day-to-day tasks, such as the collection of receivables and management of inventory. How efficiently the company utilises assets.
What ar liquidity ratios?
Liquidity ratios measure the company’s ability to meet its short-term obligations
What are solvency ratios?
Solvency ratios measure a company’s ability to meet long-term obligations. Subsets of these ratios are also known as”leverage” and “long-term debts” ratios
What are profitability ratios? §§
Profitability ratios measure the company’s ability to generate profits from its resources (assets)
What are valuation ratios?
Valuation ratios measure the quantity of an asset or flow (e.g earnings) associated with ownership of a specific claim (e.g a share or ownership of the enterprise).
Examples of liquidity ratios? page 1394
Current ratio, quick ratio, cash ratio Cash conversion cycle
Examples of solvency ratios?
Debt-to-assets ratio, debt-to-capital ratios debt-to-equity ratio, financial leverage ratio, debt-to-ebitda
Examples of profitability ratios?
Gross profit margin, operating profit margin, pretax margin, net profit margin, Operating ROA, ROA, Return on total capital, ROE, Return on common equity
Return on equity?
Net Income / Shareholders equity
Valuation ratios?
P/e, P/CF, P/S, P/BV, Basic EPS, Diluted EPS, Cash flow per share, EBITDA per share, Dividends per share
Specific industry ratios?
Capital requirements for banks - CET1.
