Chapter 1 - introduction + useful restatements Flashcards
How do you calculate the gross margin? And what is it?
Gross margin = sales of goods for resale - purchase cost of goods for resale sold
sales of good for resale = purchase of good for resale - increase (+ decrease) in inventories of goods for resale
Tha result a business have for goods resold. Not on the production side.
How do you calculate total production?
Total production = production sold + changes in inventories of finished foods and work in progress + capitalized production
What can be the reason for total production increase? (two reasons)
Production sold (positive)
Increased inventories (negative)
What is capitalised production?
Goods produced for internal usage: VW produce cars, maybe they lease car to employees, IBM produce computers and will most likely give their employees IBM computers at their offices.
How do you calculate value added (VA)? What is the VA?
Value added = total production + gross margin - external services
What the company is able to produce due to working and physical capital. The value that the company is able to add to raw materials or goods for resale due to their competencies.
Interesting economic viewpoint (welfare creation), not so much in finance.
Not a good financial evaluator - depends on the organizations of the production.
How do you calculate the EBITDA? And what is it?
EBIDTA = value added + operating subsidies (grants) - non-income taxes - personnel costs
Main indicator of how well the company is doing - positive EBITDA means that the core business of the company is good and sound, it generates profit. It is the cashable income of the company (not affected by financial structure).
How do you calculate EBIT? And what is it?
EBIT = EBITDA + other operating income - other operating costs - depreciation and amortization + reversal of depreciation and amortisation.
The operating income
What is amortisation and depreciation?
Amortization: when you purchase a machine, you divide the costs over multiple years
Depreciation: you buy a machine for $1 million, and the price will decrease each year, which shows as a graduate decrease over the years, instead of accounting for a $1 million loss when the machine is broken - allows you to pay lower taxes.
How do you calculate the financial income?
Financial income = financial revenue (income from securities and fixed assets loans) - financial expenses (interest and related charges, partners current accounts)
How do you calculate the cost of debt?
The cost of debt = interest/financial debts
How do yo calculate the Profit before tax and non-recurring items?
And why don’t we jump directly to net income?
Profit before tax and non-recurring items = EBIT + financial income +/- shares of income in common
Does not take into account exceptional items –> the result “normally” reached considering the financial structure. A company cannot cover up the result in this intermediate balance.
How do we calculate exceptional income?
The exceptional income = exceptional revenues - exceptional costs
Placebo effect
How do we calculate the net income?
Net income = profit before tax and non-recurring items + exceptional result - participation and profit-sharing of the employees - corporate income tax
How is the capacity for self-finance calculated?
From EBITDA
From Net Income
EBITDA + other cashable income - other cashable expenses - corporate income tax
Net income + non cashable expenses - non cashable income - capital gains on disposal of fixed assets
How do you calculate net sales?
sales of goods for sale + sales of finished products and services
What is the difference between the cash flow and book value (accounting flow) of net income from asset disposal?
Cash flow: the price the asset was sold for
Accounting flow:
Book value: acquisition - depreciation
Capital loss/gain: price sold for - book value
How is a leasing fee restated?
A financial expense: fee - amortisation (1/4) –> subtracted from financial income
Amortisation (3/4) –> added to DA
How do the cost of temporary employee/staff lent to the company affect the intermediary balances?
External services decreases
VA increases
How can you calculate the net income fra VA?
VA - labor cost = EBITDA
EBITDA + other cashable income - other cashable expenses = capacity of self-financing
CSF + DA reversal - DA + exceptional results on capital operations = Net income
How do you make a pro rata analysis from the intermediary balances?
Divide the intermediary balances by net sales.
How do you calculate the rate of net profit?
net income/sales
shows how efficiently the company is organising production and capital structure. How much of the sales turns into income?
How do we calculate if CSF is sufficient?
self-financing/(gross fixed assets + ∆in WC)
