Final Exam Flashcards
ROA
=AT (R/AVG A) * PM (NI/R)
Want high values for both
= (NI/AVG A)
FL
= (AVG A)/(AVG E)
PM
= NI/R
For every dollar we earn, how much goes to bottom line
AT
= R/AVG A
ROE
=(ROA) * (FL)
= (NI) / (Avg E)
Noncash WC Efficiency Ratios
Days AR = number of days to collect receivables (Low)
Days Inv = # of days to sell inv (Low-ish)
Days AP = # of days taken to pay suppliers (High)
Turnover Ratios (Days Ratios)
= (I/S) / (Avg B/S)
Days Ratio = (365) / (TO)
ST Liquidity Ratios
= (x) / (CL)
If High ratios = Low CL = not a lot of ppl in front of you as a lender
CL = What we pay in next year
CR = CA/CL
QR = (Cash + INV + AR) / (CL)
Cash Ratio = (Cash + INV) / (CL)
Cash Ops / Avg CL
A/R (Judgement & Impacts)
Estimate % Uncollected
B/S = Allowance
I/S = Bad debt Exp
Inventory (Judgement & Impacts)
Choose LIFO vs FIFO
B/S = Inv / Cash
I/S = COGS / Tax Exp
LIFO vs FIFO (Increasing COGS)
Using LIFO with increasing COGS results in
- Higher COGS
-Lower Taxable Income
-Lower NI on Paper but actaully has higher cash flow bc of tax break
- Lower income on books but more cash available
PPE (Judgement & Impacts)
Choose Useful Life
B/S = Accum Dep
I/S = Dep Exp
Investments (Judgement & Impacts)
Classify As TR, AFS, HTM
B/S = Investments / AOCI
I/S = Gain/Loss on securities
Classifying Investments (Each type affect on B/S & I/S)
TR
- B/S Value - Mkt Value
- Change in MV - I/S (Eventually ends in retained earnings affecting equity)
AFS
- B/S Value - Mkt Value
- Change in MV - AOCI
HTM
- B/S Value - Cost
- Change in MV - N/A
AOCI
Component of Equity on the B/S
Contains the unrealized gains and losses (AFS Securities)
Stock Securities (Equity)
Passive Inv - under 20%
Significant Influence - 20-50%
Controlling Interest - over 50%
Significant Inf. (Equity Method) B/S & I/S
-Between 20%-50%
B/S (+ = Increase)
Cost
- (- Cash Spent)
- (+ Investment)
% of NI (Share of Earnings)
- (+ Investments) —-> Increased NI
- (+ Retained Earn)
% of Dividends
- (+ Cash)
- (- Inv)
Passive Investment (B/S & I/S)
-Under 20%
-Reflected at MV on B/S
-Unrealized gains/losses on I/S
Controlling Interest
- Over 50%
- Consolidated Statements
-Some companies may not want to consolidate if other CO has a lot of debt or low margins that can tank #’s (Like Coke bottlers)
Bonds (Pricing)
Premium if Price > Face
Par if Price = Face
Discount if Price < Face
Solvency (Debt Ratios)
(Debt) / (Equity)
(Debt) / (EBITDA)
High debt not always bad, depending on what money is used for
Bankruptcy Payments
Lenders (Debt)
Preferred Stock (Equity)
Common Stock (Equity)
Preferred Stock
-Fixed Dividend Rates Payout
-No voting rights
-Priority dividends
-convertable
Coverage Ratios
-Ability to make payments
-Better ratios is more promising for lenders
(EBITDA) / (Int Exp)
(EBIT) / (Int Exp)
