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Financial Accounting Flashcards

1
Q

What are the five things we look for in Financial Ratio analysis?

A
  1. Liquidity
  2. Asset Management
  3. Leverage or long term financial stability/ Capital Structure
  4. Profitability
  5. Market Performance/ Stock Market Ratios
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2
Q

What is liquidity analysis?

A

Assessing solvency. How fast you can recover your cash.

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3
Q

What are the 2 liquidity ratios?

A

1) Current Ratio 2) Quick Asset Ratio

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4
Q

What is Asset Management analysis?

A

Assessing efficiency. How efficiently are you utilising your assets?

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5
Q

What are the 3 Asset Management ratios used?

A

1) Total Asset Turnover 2) Inventory Turnover (+ Age of Inventory 3) Accounts Receivable Turnover

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6
Q

What is Leverage / Capital Structure analysis?

A

Assessing long term financial stability. How they manage their debt. Can you exist the next 5 years in how you’re managing debt?

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7
Q

What are 3 the leverage/ capital structure ratios?

A

1) Debt to Assets
2) Debt to Equity
3) Time interest earned (or interest cover)

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8
Q

What is Profitability Analysis?

A

Assessing Return - how profitable the business operation has been

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9
Q

What are the 4 Profitability ratios?

A

1) Profit margin 2) Return on assets 3) Return on equity 4) Return on capital employed

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10
Q

What is Market Performance/ Stock Market Ratios?

A

This reflects market valuations & performance. How the market is pricing the company for its earnings and tangible assets, dividend payouts, and wealth generated for the shareholders

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11
Q

What are the 7 ratios for market performance?

A

1) Net tangible assets per share
2) Net Assets per share
3) Dividend per shares
4) Earnings per share (EPS)
5) Dividend yield
6) Dividend Cover
7) Price Earnings Ratio (PER)

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12
Q

Current ratio formula

A

Total Current Assets / Total Current Liabilities

Non percentage

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13
Q

Current ratio meaning

A

Also known as working capital ratio. Ability to meet its short term debts. A current ratio of 1 or > means the company is well positioned that its assets can meet its debt.

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14
Q

Quick Asset Ratio (Acid Test) Formula

A

(Current Assets - Inventory - Prepayment) /

Current Liabilities - Overdraft

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15
Q

What does quick asset ratio mean?

A

Ability to meet its short term obligations with its most liquid assets.

A company with a high/ increasing quick ratio is likely to experience revenue growth, collecting its accounts receivable and turning them into cash quickly.

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16
Q

Profit Margin formula

A

(%)

Profit before Interest & Tax / Sales

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17
Q

Gross Profit Margin Formula

A

Gross Profit / Revenue

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18
Q

Operating Profit Margin Formula

A

Operating Profit / Revenue

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19
Q

Pre-tax Profit Margin Formula

A

Pretax profit / Revenue

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20
Q

Net Profit Margin Formula

A

Net Income/ Revenue

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21
Q

Book value

A

Net book value, written down value, unexpired cost

Asset - accumulated depreciation

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22
Q

Straight line depreciation

A

Depreciation per year = (Cost- Estimated residual value) / Estimate useful life

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23
Q

Reducing balance depreciation formula

A

Depreciation rate = (1- ^n square root (residual value/ cost))

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24
Q

Total Asset Turnover

A

Sales / Total Assets

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25
Non Current Asset Turnover
Sale or Revenue/ Total Non Current Assets
26
Inventory Turnover
COGS / | Inventories
27
Days in Inventory
Inventories/ COGS *365
28
Accounts Receivable Turnover
Credit Sales (or Revenue)/ Accounts Receivable (or Trade Debtors)
29
Debtor Days (also called average collection period)
Accounts Receivable (or Trade Debtors) / Credit Sales (or Revenue) x 365
30
Debt to Assets
Total Debt (or Total Liabilities)/ Total Assets
31
Leverage Ratio or Total Debt to Total Equity Ratio
Total Liability / Total Equity (include minority interest)
32
Long term debts to total equity ratio
Long term liability / Total Equity (include minority interest)
33
Time interest earned Ratio
PBIT or (Profit from operations) / Interest expense (or Finance cost)
34
ROA
PBIT / Total Assets
35
ROA
Total Asset Turnover x Profit Margin
36
ROA
(Sales/ Total Assets) * (PBIT/Sales)
37
ROE
Profit after tax - minority interests (or Net income) / Shareholders' equity (or Net Assets) Shareholders equity here (- minority interest)
38
EPS
Profit attributable to shareholders (shareholders of parents) / Weight avg. no. of ordinary shares
39
EPS
(Profit after tax for the year - minority interest)/ weighted average no of ordinary shares
40
Dividend per share
Total Dividend (interim + final) / number of ordinary shares (or share capital)
41
P/E
Market price per share/ EPS
42
Net Tangible Assets per share
Net Tangible assets (or book value or net asset value) / number of ordinary shares (or share capital) or Total Assets - (Goodwill) - (other tangible assets) - (total liabilities) - (minority interests) or Total Shareholders' equity - (Goodwill) - (Other intangible assets)
43
Net Asset per share
Net assets (or shareholder's equity) / number of ordinary shares
44
Net book value of fixed assets refers to
Cost of fixed assets minus accumulated depreciation
45
PVBR: Price to book value ratio
Book Value per share = (Book Value of assets - Book Value of liabilities) _________________________ Number of ordinary shares PBVR= Market price per share/ Book Value per share
46
Intrinsic Price (or value) of Warrants
(Market Price of share - Exercise price) x no of shares each warrant entitles the holder to purchase
47
Theoretical ex-rights price
(No of existing shares x Market price) + (No of issues shares x Issues shares price) _______________________ No of existing + issued
48
Intrinsic value of rights
Theoretical ex rights price - rights issue subscription
49
Dividend growth rate (finding g)
% retained profits (not to issue as dividend) - ROE %
50
Gordon growth model = Finding the intrinsic value of a share
DPS (1+g) / (ke-g) Note! However if the question states, PLANNING to issue the DPS, then DPS is already expected hence the (1+g) is not needed. Expected DPS = DPS(1+g)
51
Real interest rate or Real risk free rate of return
(1+ Nominal Rate ___________ 1 + Inflation Rate ) - 1
52
Dividend Per Share (Alternative equation)
EPS x Dividend Payout Ratio
53
Return on sales ratio
Operating Profit/ Sales
54
ROE Du Pont Analysis
(1) (Net Income/ PBT) * (PBT/ PBIT) * (PBIT/ Sales) * (Sales/ Total Assets) * (Total Assets/ Shareholders' Equity) (2) Tax Burden * Interest Burden * Profit Margin * Total Asset Turnover * Financial Leverage (3) (Net Income/ Sales) * (Sales/Total Assets) * (Total Assets/ Shareholder's Equity)
55
How much do I have to invest today to be sure you can get xx amount in the future in xx days?? E.g. How much do I invest today if I want RM50,000 in 90 days with interest rate of 6%
P= 50000/ 1 + (0.06 * 90/365)
56
In a Rights Issue: how many does the shareholders' have the right to purchase before new shares are offered to public?
Rights to purchase = | (no of shares stockholders own/ common stock outstanding) x new shares
57
Accounting equation
Assets = Liabilities + Equity
58
Expansion of accounting equation
Non current assets + current Assets = Long term liabilities + short term liabilities + capital + reserves
59
Dividend Yield
DPS/ Market Price per Share
60
Intrinsic Value of CULS
Market Price of Ordinary Shares/ Number of CULS required for conversion
61
CAPM : Capital Asset Pricing Model
Risk free rate= (1 + Real Rate) (1+ Expected Rate of Return) - 1 CAPM: ke= Rf + B (km - Rf) ``` Rf= risk free rate ke= required rate of return b= beta coefficient km = expected return for ordinary shares (km-Rf) = risk premium ``` The cash flows or dividends are discounted at a rate of ke, which is described as the market capitalisation rate of shares of the class being considered, as determined by CAPM
62
WACC: Weighted Average Cost of Capital
WACC= (After tax cost of debt x Proportion of debt financing) + (Cost of equity x Proportion of equity financing)
63
Value of the company
t=n, E = sum of Operating Cash Flow / (WACC - growth of operating cash flow)
64
Expressing PE using Earnings Yield
Earnings Yield = EPS/ Market Price Earnings Yield = 1/PE
65
How much will I get in the future if I put in this xx amount deposit wit this rate. E.g. deposit = 100,000 Maturity: 30 days Rate: 5.50%
FV= deposit + (deposit x rate x day/365) 100,000 + (100,000 * 0.55* 30/365)
66
Ex bonus price
Market price * ori total of shares/ new total of shares
67
Warrant premium
Premium = market price - intrinsic value
68
Ex all price
= (no of ordinary share x market price) + (rights + rights price) ___________________________ No of ordinary+ bonus+ rights Note: bonus price is always RM0 that’s why not included No of ordinary share = of rights??
69
Earnings Yield expressing PE
Earnings yield = EPS/ Market price Earnings yield = 1/PER
70
Rate of return on a stock
(Ending value - Beginning value) + Dividend _______________ Beginning value Value aka market price of stock

Financial Ratios & Calculations (1 decks)

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