Chapter 1 Flashcards

1
Q

Dual - legal/economic nature of a company

A

A company is a combination of human, materials, and resources and permanently involved in merchant activities and in an organized and centralized way with a profit intent

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2
Q

Its environment

A

partners or shareholders but also other parties directly or indirectly involved in it or stakeholders

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3
Q

CFO

A
  • To ensure and perpetuate the company’s necessary financings on an ongoing basis
  • And to ensure and maintain an efficient allocation of those financial resources to the company’s needs
  • So as to minimize the weighted average cost of capital - cfMIN(WACC) - and thus help maximize the return on equity - cfMAX(ROE)
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4
Q

WACC

A

k * e/(e+d) + i*(1-t) d/(e+d)

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5
Q

ROE

A

Re = (1-t) ra + (1-t) * (ra-i) * (d/e)

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6
Q

Balance Sheet

A

numerical (fixed) picture/ table showing the firms detailed/ itemized corporate wealth at a given point in time – as of 31st Dec – showing all its assets and liabilities at that time, in two distinct columns

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7
Q

B/S Spectrum

A

Spectrum of stock aggregates

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8
Q

Assets/Liabilities order

A

Shows the companies assets by increasing order/ degree of liquidity and its liabilities by increasing order/degree of repayment

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9
Q

P&L

A

a numerical (moving) table showing the firms detailed/ itemized corporate performance over a given period of time – one year – howling all its revenues and expenses during that period, also as a result, the corresponding net profit or loss generated in that period, in two distinct columns with equal totals

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10
Q

Spectrum of P/L

A

flow aggregates

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11
Q

Revenue and Expense order

A

Shows companies revenues and expenses starting with current operations, then financial items, then non-recurring items, and then tac items – with a caveat, so as to isolate the non cash expenses

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12
Q

Connection between B/S and P&L

A

Connection: the financial years bottom line (net profit or loss) is shown on the P&L and then carried forward in the B/S in the Balance Carried Forward Account

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13
Q

Retrospect

A

based on financial statements over the past 2-3 years

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14
Q

Prospective

A

based on projected documents
- medium term
- short term
supervision and monitoring

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15
Q

Medium Term

A

the business plan and the cash flow statement

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16
Q

Business plan

A

is a detailed and comprehensive document, having both a qualitative and quantitative nature, presenting the company in an organized and systematic manner in all its present and future dimensions
- strategy, organizational management

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17
Q

Cash Flow Statement

A

a double entry table showing all the projected stable or recurring uses and sources of funds on a multi-year basis (over 3-5 years)

18
Q

Short term horizion

A

he budgeting process, in particular concerning the cash projections

19
Q

Budgets

A

tables drafted function by function – the capex, sales, purchases budget, cash projections, and all forecasted figures over a given short period of time – a year/financial year which is usually divided into shorter sub periods

20
Q

Supervision/ monitoring:

A

management charts/ control charts

21
Q

The company’s management and control charts

A

tables drafted function by function for the capex, sales, purchases, sales projections. Comparing all the projected figures with all the recorded figures over a given period of time, to identify and analyze the potential gaps

22
Q

Single Company

A

use the company or individual statements

23
Q

Group

A

use the consolidated financial statements – based on the combined financial statements of the company

  • The parent company P
  • The subsidiaries S
  • All strategic or significant affiliates A (typically showing a 20 to 50% interest held by the parent)
  • Where 1) + 2) + 3) = the scope of consolidation or consolidation base = P + S + A
24
Q

Reason for consolidation

A

not a simple addition of all relevant individual financial statements but implies a number of adjustments in various ways essentially to eliminate intra-group or inter-company bookkeeping entries and hence to eliminate undue duplications

25
KPI from Balance sheet
- Working Capital - Working Captial Requirements
26
Working capital (W.C)
all stable financings - total net fixed assets
27
Working capital requirements (WCR)
operating assets - operating liabilities
28
Company Net Cash Position
Net Cash Position = WC - WCR
29
Key Solvency Test
the debt/equity or D/E ratio
30
P&L KPI
- Intermediate Operating Totals (IOT) - The operating added value (OAV) - The earnings before interest, taxes, depreciation, and amortization (EBITDA) - The earnings before interest and taxes (EBIT) - The net operating profit after tax (NOPAT)
31
Coverage Ratios
- The debt service coverage ratio = EBITDA/ p+i - FCF = FCF/p+i - Interest expense coverage ratio = EBIT/i
32
Operating Income Ratio/ Operating Margin Ratio
EBIT/Sales
33
Net Profit Ratio (NPR) or Net Margin Rate (NMR)
Net Income/Sales
34
Net Return on Equity (ROE)
Net Income / Equity
35
Turnover rate
Showing the company’s ability to turn operating items into cash
36
Inventory turnover rate
inventories / sales
37
Customer turnover rate
client receivables / sales
38
Supplier turnover rate
supplier payables / purchases
39
KPIS rationale
analyzed as a trend rather than only at a given point of time - comparions with standard values or meansures - computed statstically as a representation of given indsutry segment of a certain size and age of company - geographically
40
Meet debt service payments
debt service = (p+i) through recurring cash flwos
41
Use KPIs internally
- distressed company - LBO - finance structure