Ch. 8: Intro to Basic Ratios and Analysis

Question 1

What are common size financial statements?

Answer 1

CS financial statements show line items as a % of a relevant total (such as total assets, etc)

Question 2

How is EBIT derived?

Answer 2

Revenues-COGS-SGA-Depreciation/Amortization-R&D expenses

Question 3

How do you derive EBITDA?

What is EBITDA used as a proxy for?

Why is EBITDA not the best proxy for ____?

Answer 3

Revenues-COGS-SGA-R&D Expense

EBITDA is used as a proxy for FCF or CFO

EBITDA excludes interest and taxes, which are adjusted for in CFO.

Question 4

1. What is the formulas for AR turnover?
2. What is the formula for Days Sales Outstanding? What does this tell us?

Answer 4

1. Sales/AR
2. 365/AR Turnover

It tell us how many days it takes to collect its AR

Question 5

1. What is inventory turnover formula?
2. What is Days Sales in Inventory formula? What does it tell us?

Answer 5

1. COGS/Inventory
2. 365/inventory turnover.

it tell us the number of days for a firm to sell its inventory

Question 6

1. What is the accounts payable turnover formula?
2. What is the Days Payable Outstanding formula? What does it tell us?

Answer 6

1. Purchases/Accounts payable
2. 365/account payable turnover

It tell us the number of days it takes for the firm to pay its account payable obligations