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FN1 corporate finance > Chapter 4: financial statement analysis and forecasting 2 > Flashcards

Chapter 4: financial statement analysis and forecasting 2 Flashcards

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1
Q

what are the productivity ratios

A
  1. receivable turnover ratio
  2. average collection period (ACP)
  3. inventory turnover ratio
  4. Average days sales in inventory (ADSi)
  5. Fixed asset turnover
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2
Q

How do you calculate receivable turnover ratio

A

revenue / ar

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3
Q

how do you calculate average collection period (ACP)

A

AR/ Avg. daily credit sales

= 365/ receivable turnover

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4
Q

how do you calculate inventory turnover ratio

A

COGS / Inventory

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5
Q

how do you calculate average days sales in inventory (ADSI)

A

inventory / avg daily sales -

365/ inventory turnover

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6
Q

how do you calculate fixed asset turnover

A

sales / net fixed assets

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7
Q

what does ACP show

A

estimates the number of days it takes for a company to collect on its A/R

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8
Q

what does receivable turnover show

A

measure the sales generated by every dollar of receivable

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9
Q

what does inventory turnover ratio show

A

measures the number of times ending inventory was turnover (or sold during the year)

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10
Q

what is a danger about inventory turnover ratio

A

managers often try to improve this ratio when they are close to year end (through inventory reduction strategies )
- ie. cash and carry sales, clearance)

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11
Q

what does average days sales in inventory show

A

estimates the number of days sales tied up in inventory, based on ending inventory values

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12
Q

what does fixed asset turnover show

A

estimates the number of sales produced by each dollar of net fixed assets

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13
Q

What do productivity ratios show

A

measure the company’s ability to generate sale sform its assets
0 excessive investment in assets with little or no increase in sales reduces the rate of return on both assets (roa) and (ROE)

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14
Q

What are the liquidity ratios

A
  1. working capital
  2. current ratio
  3. quick (Acid test)
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15
Q

what do liquidity ratios measures

A

the ability of the company to meet its financial obligations as they mature using liquid (cash or near cash) resources

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16
Q

what is the formula for working capital

A

current assets / total assets

17
Q

what is the formula for current ratio

A

current assets / current liabilities

18
Q

what is the formula for quick acid test

A

cash + marketable securities + AR / current liabilities

19
Q

what does working capital show

A

measures the proportion of total assets invested in current assets
- demonstrates the company’s capital intensity and corporate liquidity

20
Q

what does the current ratio measure

A

measures the number of dollars of current assets for each dollar of current liabilities

  • estimates the capacity of the company to meet its financial obligations as they mature
21
Q

what does the quick acid test show

A

recognizes that inventories and other current assets may be less liquid and in some cases when they have to be liquidated quickly, can result in cash flows that are less than book value

22
Q

What are the valuation ratios

A
  1. equity book value per share (BVPS)
  2. dividend yield
  3. trailing price-earnings (p/e)
  4. Forward P/E
  5. Market-to-book
  6. earnings before interest, taxes, depreciation and amortization (EBITDA) multiple
23
Q

how do you calculate equity book value per share (BVPS)

A

SE / Number of shares

24
Q

how do you calculate dividend yield

A

dividend per share / price per share

DPS / P

25
Q

How do you calculate the trailing price-earnings (or P/E)

A

share price / earnings per share

P / EPS

26
Q

how do you calculate forward P/E

A

share price / estimated earnings per share

P / EEPS

27
Q

how do you calculate market-to-book

A

share price / book value per share

p / BVPS

28
Q

how do you calculate Earnings before interest, taxes, depreciation and amortization

A

TEV (total enterprise value) / EBITDA

29
Q

what does equity book value per share show

A

expresses shareholder’s equity on a per share basis

30
Q

what does the dividend yield show

A

expresses the dividend payout as a proportion of the current share price

  • can be compared to the yield on other investment instruments, such as bonds or the stock of other dividend-paying companies
31
Q

what does trailing price-earnings (p/E) show

A

an earnings multiple based on the most recent earnings

- often used to estimate the value of a stock

32
Q

what does forward P/E show

A

an earnings multiple based on forecast earnings per share

  • often used to estimate the value of a stock for companies with rapid growth in EPS

low P/E - regarded as value stocks

high p/e - regarded as growth stocks

33
Q

what does the market-to-book show

A

estimates the dollars of share price per dollar of book value per share

  • the degree to which market value per share exceeds BVPS indicates the value that has been added to the co. by management
34
Q

what is the basis for market-to-book

A

historical cost accounting is the basis for BVPS

35
Q

what does earnings before interest, taxes, depreciation and amortization (EBITDA multiple show

A

expresses total enterprise value (TEV) for each dollar of operating income or EBITDA

36
Q

What does total enterprise value mean

A

is an estimate of the market value of the firm

FN1 corporate finance (44 decks)

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