final Flashcards
Gross profit margin + (formule)
Gross profits / Sales = %
Indicates the proportion of sales that a company retains after covering costs directly related to sales;
Earnings before interest, tax, depreciation and amortization (EBITDA)
A performance indicator that is not affected by management choices with respect to investment and financing, or by taxation
Earnings Before Interest and Taxes (EBIT).
A performance indicator that is not affected by financing choices or taxation
Operating margin
Provides information on the % of operational profitability taking into account operating costs only.
Net profit margin + (formule)
Net income / Sales = %
Indicates the proportion of sales that turn into profit (management’s ability to make operations profitable);
Return on Assets - ROA + (formule)
Net Income / Total assets = %
Indicates the company’s ability to generate results (or profits) from all its assets
Asset Turnover + (formule)
Sales / Total Assets
$ of Sales generated by each $ invested in resources
Return on Equity - ROE + (formule)
Net income / Shareholder’s equity = %
Indicates the return shareholders on their invested capital.
Earnings per share - EPS + (formule)
Net income – Dividends on preferred shares / Weighted average number of common shares outstanding = $
It measures the portion of net income earned by each common share;
Diluted earnings per share - EPS + (formule)
Net income – Dividends on preferred shares / Weighted average number of common shares outstanding + common shares issued if dilutive instruments were converted = $
Measures the profit or loss attributable to each share outstanding or that could exist if all holders of dilutive instruments exercised them.
Price-to-earnings ratio : P/E + (formule)
Share price / Earnings per share = multiple
What is Cash Conversion cycle?
This is the period between the purchase of raw materials (or goods) and the collection of sales revenue.
1) Purchase of raw materials or goods from the supplier
2) Payment of the supplier
3) Sale of goods to the customer
4) Receipt of sums due by the customer
Days Accounts Payables Outstanding + (formule)
Accounts payable / Purchases x 365 days = Number of days
Accounts Payable Turnover + (formule)
Purchases / Accounts Payable = Number of times
This ratio shows the frequency of payments for purchases during the fiscal year.
Days Inventory Outstanding + (formule)
Inventory / Cost of sales x 365 days = Number of days
It represents the number of days between the purchase and sale of inventory (or goods).
Inventory Turnover + (formule)
Cost of Sales / Inventory = Number of times
This is the frequency of inventory turnover during the fiscal year.
Days Sales Outstanding + (formule)
Accounts receivable / Revenues x 365 days = Number of days
It represents the number of days between the sale of inventory (or goods) and the receipt of money due from the customer.
Recevables turnover + (formule)
Revenues / Accounts Receivable = Number of times
This ratio calculates the frequency of sales collection during a fiscal year
Inventory Conversion Cycle:
Days Inventory Outstanding + Days Sales Outstanding
Example = (Days Inventory Outstanding) 40 days + Days Sales Outstanding 30 days = 70 days
So there is a delay of 70 days between the receipt (or end of production) of inventory and its transformation into cash.
Cash Conversion Cycle
Time to sell inventory + Customer collection time - Days Payable Outstanding
Example = (Days Inventory Outstanding) 40 days + Days Sales Outstanding 30 days = 70 days
Days Payable Outstanding = 45 days
Cash Conversion Cycle = Inventory Conversion Cycle - Days Payable Outstanding = 70-45 = 25 days
Asset Turnover + (formule)
Revenues / Total Assets = Number of times
This ratio indicates what each dollar invested in the Assets generates in dollars of Sales
Current ratio + (formule)
Current asset / Current liability
Does the company have enough current resources to cover its current liabilities?
Quick ratio + (formule)
(Cash + Current Investments + Accounts Receivable) /Current liability
Does the company have enough short-term resources without having to sell inventory to meet its short-term obligations?
Acid Test (Cash Ratio) + (formule)
(Cash and cash equivalents + Current Investments) / Current liability
Does the company have enough short-term resources without having to sell inventory and collect trade receivables to cover its short-term liabilities?
Indebtedness ratios + (formule)
Total interest-bearing liabilities / Total Assets = %
Interest-bearing liabilities include types of debt on which interest is calculated (e.g., bank loans, mortgages, etc.)
This ratio can be calculated by considering only interest-bearing liabilities, since there are several items within liabilities that do not constitute debt financing.
Long-term Debt to Equity Ratio + (formule)
Long-term Debt / Equity = multiple
Statement of Cash Flow
There are two methods for preparing and presenting the Statement.
Indirect method
It requires adjusting net income by removing all items included in the calculation of net income that do not affect the company’s cash flow. Then, the changes in the company’s working capital are added back in. This is the method used by most public companies
Statement of Cash Flow
There are two methods for preparing and presenting the Statement.
Direct method
It requires converting revenues into receipts and expenses into disbursements.
Overview of the Statement of Cash Flow
Cash flows from operating activities
include the sale and purchase (or production) of goods and services, including cash collected from customers, payment to suppliers or employees and payment of items such as rent, taxes and interest
Overview of the Statement of Cash Flow
Cash flows from investing activities
Show cash effects of all transactions involving long-term assets (fixed assets, long-term investments, etc.).
Examples: acquisitions of fixed assets, disposals of fixed assets, sales of long-term investments
Overview of the Statement of Cash Flow
Cash flow from financing activities
Show cash effects of all transactions involving shareholders or creditors.
Examples: share issues, loan repayments
Dividends paid and interest paid
