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Series 79 - Version of Detailed Subsections of Chapter > Chapter 1: Analysis & Evaluation Of Data > Flashcards

Chapter 1: Analysis & Evaluation Of Data Flashcards

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Series 79 Top-Off Exam flashcards
1
Q

Current ratio (working capital ratio)

A

Measures a company’s ability to pay short term obligations using short term assets.

CA / CL

The higher the better.

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2
Q

Quick ratio

A

More conservative measure of a company’s ability to service short term debt.

(CA - Inventory) / CL

The higher the better.

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3
Q

Debt to equity ratio

A

Compares the proportion of a company’s assets that are financed with debt vs. shareholder investment.

Debt / shareholders’ equity

Accounts payable is usually deducted from the debt calculation.

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4
Q

Debt to capital ratio

A

Liquidity measure that compared debt to total invested capital.

Debt / (debt + shareholders’ equity)
Or
Total liabilities / total assets

The higher the ratio, the more leveraged the company.

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5
Q

The cash conversion cycle

A

Measures how quickly a business turns expenditures for raw inputs into cash received.

= DIO + DSO -DPO

expressed as the average number of days in each cycle that working capital is unavailable for other uses.

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6
Q

Inventory turnover ratio

A

Measures how many times a company’s inventory is sold & replaced over an accounting period.

= COGS / avg. inventory for the period

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7
Q

Days inventory outstanding

A

= 365 / inventory turnover ratio

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8
Q

Receivables turnover ratio

A

Measures how many times during an accounting period a company collects it’s accounts receivables.

= net credit sales (or sales) / avg. accounts receivable

A low ratio compared to industry norms may have collections issues or liberal credit policies.

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9
Q

Days sales outstanding

A

= 365 / receivables turnover ratio

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10
Q

Payables turnover ratio

A

Measures the time the company takes to pay its suppliers

= COGS / avg. payables

A low ratio could indicate cash flow issues, or that the company has negotiated favorable credit terms.

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11
Q

Days payable outstanding

A

= 365 / payables turnover ratio

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12
Q

Free cash flow

A

The amount of money a company has left over after all operational expenses that can be reinvested, used to pay debt, or distributed to shareholders

= EBIT + D&A - taxes - cap ex - change in working capital

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13
Q

Free cash flow yield

A

A ratio that allows free cash flow to be compared to comps.

= FCF / market cap
Or
FCF / enterprise value

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14
Q

Profitability

A

A company’s ability to convert revenue into profit.

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15
Q

The balance sheet

A

Snapshot of financial position

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16
Q

Balance sheet equation

A

Assets = Liabilities + Owners’ Equity

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17
Q

Assets

A

Anything a company owns that has an economic benefit.

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18
Q

Current assets

A

Assets that are likely to be converted to cash within 12 months.

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19
Q

Long-term assets

A

Assets that the company does not expect to convert to cash within twelve months.

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20
Q

Liabilities

A

Any financial obligation the company owes.

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21
Q

Current liabilities

A

Obligations that are expected to be paid off within twelve months.

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22
Q

Long-term liabilities

A

Financial obligations that do not need to be repaid within one year.

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23
Q

Shareholders’ equity

A

The amount of money that would be left over if a company would be left over if a company liquidated all of its assets and paid off all it’s liabilities.

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24
Q

Additional paid in capital

A

The amount of money a company receives above and beyond the par value of stock.

Not based in current mv of stock.

Represents amount of $ a company receives from initial stock sale.

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25
Q

Treasury stock

A

Amount of its own stock a company owns.

Shares still considered issued.

No voting rights or dividends.

Usually negative number on balance sheet.

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26
Q

Retained earnings

A

Cumulative figure that represents a company’s total profit since inception, less dividends paid.

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27
Q

Revenue

A

Total amount of $ the company brought in from the sales of goods and services during the period in question.

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28
Q

COGS

A

Direct cost to company to produce the goods or services during the period.

Primarily variable costs

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29
Q

Operating expenses

A

Expenses that support the company’s operations, but are not directly linked to the production of goods or services.

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30
Q

Depreciation and amortization

A

Method of accounting for the wear and tear and obsolescence of tangible and intangible assets.

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31
Q

The cash flow statement

A

Depicts the flow of cash into and out of the company.

Shows whether the company is generating enough cash to pay its expenses and invest in the business in the short term.

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32
Q

Liquidity

A

A company’s ability to meet its short term obligations.

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33
Q

Working capital

A

Current assets - current liabilities

The amount of $ a company has to fund its operations and expand its business

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34
Q

Net debt

A

S-T debt + L-T debt - cash & cash equivalents

Amount of debt a company holds in relation to its liquid assets.

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35
Q

Current ratio

A

Current assets / current liabilities

Measures a company’s ability to satisfy short term obligations.

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36
Q

Quick ratio

A

(current assets - inventory) / current liabilities

More conservative measure of short term liquidity than the current ratio.

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37
Q

Debt to equity ratio

A

Debt / shareholders’ equity

Compares the proportion of a company’s assets that are by debt v. Shareholders’ equity.

  • AP is usually deducted from total liabilities when determining the debt figure.
38
Q

Debt to capital ratio

A

Debt / (debt + OE)
Or
Total liabilities / total assets

Liquidity measure that compares debt to total capital.

The higher the ratio, the more leveraged the company.

39
Q

Cash conversion cycle

A

Days sales outstanding + days inventory outstanding - days payables outstanding

Measures how quickly a business turns expenditures for raw inputs into cash received.

Represents the number of days between the purchase of raw inputs and the collection of cash from the sale of finished goods.

The shorter the ccc, the better.

40
Q

Inventory turnover ratio

A

COGS / avg. inventory

Measures how many times a company’s inventory is sold & replaced over the accounting period.

41
Q

Average inventory

A

(beginning inventory + ending inventory) / 2

42
Q

Days inventory outstanding

A

365 / inventory turnover ratio

43
Q

Receivables turnover ratio

A

Sales / avg. receivables

Measures how many times during an accounting period a company collects its accounts receivable.

44
Q

Average AR

A

(beginning AR + ending AR) / 2

45
Q

Days sales outstanding

A

365 / receivables turnover ratio

46
Q

Payables turnover ratio

A

COGS / avg. payables

47
Q

Average payables

A

(beginning payables + ending payables) / 2

48
Q

Days payable outstanding

A

365 / payables turnover ratio

49
Q

Free cash flow

A

= EBIT + D&A - taxes - CapEx - change in WC

The amount of money a company has left over after all operational and capital expenses that can be re-invested, used to pay debt, or distributed to shareholders.

50
Q

Free cash flow yield

A

FCF / market cap
Or
FCF / enterprise value

Ratio that converts FCF to a form that can be meaningfully compared to the ratios of the comps.

51
Q

Profitability

A

The ability to convert revenue into profit.

Often necessary to adjust for extraordinary and non-recurring expenses.

52
Q

EBITDA

A

EBIT + D&A
Or
Net income + taxes + interest expense + D&A

A measure of a company’s profitability that strips away the effect of a company’s capital structure by stripping away interest expense and taxes.

53
Q

EBITDAR

A

Earnings before interest, taxes, D&A, and rent (or restructuring)

Used in specific limited circumstances.

54
Q

Earnings per share (EPS)

A

Net income / avg. shs outstanding

Expresses the amount of a company’s profit allocated to each outstanding share of common stock.

Preferred dividends are usually deducted from net income before the calc.

55
Q

Treasury stock method

A
  1. Determine # of convertible securities that are in the money
  2. Calculate the total # of shs if the in the money securities were exercised.
  3. Calculate proceeds company would receive from exercise.
  4. Determine # of shs company can repurchase at the current market price with the proceeds.
  5. Subtract repurchased shs from new shs from exercise & add the result to the original shs outstanding.
56
Q

Price to earnings ratio

A

Price per share / EPS

The lower the ratio, the cheaper the stock, relative to the comps.

57
Q

Earnings yield

A

EPS / PPS

The percentage of each dollar of the company’s market price that the company earns a profit.

58
Q

Equity turnover

A

Sales / avg. shareholder equity

Measures how efficiently a company uses stockholder equity to generate revenue

59
Q

Return on equity

A

Net income / owners’ equity

Measures the return generated on capital provided by a company’s shareholders.

Total OE is generally measured at the beginning of the fiscal year or accounting period.

60
Q

Return on assets

A

Net income / total assets

Measures how effectively a company is using it’s asset base to generate revenue

61
Q

Return on invested capital

A

EBIT (1 - t) / net debt + OE

Measures the return provided by the cumulative capital invested in the company.

62
Q

Total expense ratio

A

Total fund operating costs / avg. total fund assets

Measures the total percentage of assets under management that are consumed by management costs.

Used for mutual funds & other investment funds.

63
Q

Times interest earned

A

EBIT / interest expense

Leverage ratio that reflects a company’s ability to satisfy it’s interest payments with earnings.

The closer to 1, the more difficult it is to pay interest expense.

64
Q

Debt to EBITDA ratio

A

Total debt / EBITDA

roughly determines how many years of earnings are required to pay off the company’s debt completely.

65
Q

Market capitalization

A

Current price per share x shs outstanding

Represents the total market value of the company’s equity.

66
Q

Equity value

A

Market cap + value of stock options & convertible securities.

Takes into account all equity interests.

67
Q

Enterprise value

A

MV of equity + net debt

The “takeover” value of a company.

68
Q

Net debt

A

The total debt on the balance sheet less cash and cash equivalents.

69
Q

EV / EBITDA ratio

A

Most frequently used valuation metric.

Independent of a firm’s capital structure, i.e. good for comparing companies.

70
Q

P/E ratio

A

Price per share / EPS

Compares the growth expectations that are built into a company’s stock price.

Dependent on capital structure, therefore could have comparability issues.

71
Q

Price to earnings growth ratio (PEG)

A

P/E ratio / expected EPS % growth

Stocks with PEG > 1 are over valued
Stocks with PEG < 1 are under valued

72
Q

Price to book ratio

A

Market cap / BV of equity

Indicates if a company is over or under valued relative to the value of its assets.

Also called price to net asset value ratio
A company with a price / book ratio < 1 theoretically trades below its liquidation value & is under valued.

73
Q

Price to cash flow ratio

A

PPS / operating cash flow per share

Less common alternative to P/E ratio.

Eliminates distortions caused by the accounting treatment of D&A and other non cash charges.

74
Q

Price to sales ratio

A

PPS / revenue per share

Measures how much revenue a $1 investment in stock generates.

Revenue per share is usually calculated on an LTM basis.

75
Q

Sum of the parts analysis

A

Valuing the individual segments of a company, the summing the values to arrive at the total EV of the company.

76
Q

Accretion / dilution analysis

A
  1. Estimate pro forma net income for the combined entity
  2. Determine the new share count for the combined entity
  3. Calculate the pro forma EPS
  4. Calculate the buyer’s standalone EPS
  5. Compare the combined EPS to the standalone EPS

If combined EPS is greater than standalone EPS, then transaction was accretive. If less, it was dilutive.

77
Q

Dividend yield

A

Annual dividend per share / PPS

Expresses the return per dollar invested that flows back to investors in the form of dividends.

78
Q

Dividend payout ratio

A

Annual dividend per share / EPS

expresses the percentage of a company’s earnings that are paid out as dividends.

A relatively high dividend payout ratio may indicate a relatively mature company.

79
Q

Compound annual growth rate (CAGR)

A

((end value / beg. value)^(1/n))-1

Calculates the year over year growth rate of an investment if it is assumed that it grew at a steady rate over the time period.

80
Q

Cost of capital

A

The expected rate of return that the business could have earned if it invested funds in a different investment with a similar risk profile.

The opportunity cost of all funds, debt and equity, that are invested in a business.

81
Q

Weighted average cost of capital (WACC)

A

(Kd * (1-t) * Wd) + (Ke * We)

A company’s cost of capital, based on the percentage of debt and equity in the capital structure.

82
Q

Cost of equity

A

Rfr + (beta * Mrp) + Sp +SRp

83
Q

Market risk premium (Mrp)

A

Erp - Rfr

The excess return that a stock provides over the risk free rate.

84
Q

Economic profit

A

The difference in profit between two alternative investments.

85
Q

Net present value (NPV)

A

The sum of the present values of all future cash flows, minus the cost of the initial investment and the present value of all future cash outflows, over some time horizon.

If NPV is > 0, then the investment in acceptable.
If NPV IS < 0, the the investment is not acceptable.

86
Q

Internal rate of return (IRR)

A

The discount rate at which the NPV of all cash inflows & outflows is 0.

Generally, the higher the IRR, the more desirable the investment.

87
Q

Dividend Discount Model

A

Stock Value = Dividend per share / (discount rate - dividend growth rate)

88
Q

Stock Volatility

A

The tendency of a stock’s price to fluctuate over the short term

89
Q

Beta

A

The measure of a stock’s average volatility relative to the volatility of the overall market.

The market’s beta = 1

90
Q

Asset Turnover Ratio

A

Revenue / Avg. Total Assets

Measures a Company’s ability to use its assets to generate revenue. The higher the better.

91
Q

Average Total Assets

A

(Beginning Assets + Ending Assets)/2

92
Q

Inventory Equation

A

Beginning Inventory + Purchases - COGS = Ending Inventory

Series 79 - Version of Detailed Subsections of Chapter (16 decks)

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