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Financial Ratios & Calculations > Financial Accounting > Flashcards

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
Q

Non Current Asset Turnover

A

Sale or Revenue/ Total Non Current Assets

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26
Q

Inventory Turnover

A

COGS /

Inventories

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27
Q

Days in Inventory

A

Inventories/ COGS *365

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28
Q

Accounts Receivable Turnover

A

Credit Sales (or Revenue)/ Accounts Receivable (or Trade Debtors)

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29
Q

Debtor Days (also called average collection period)

A

Accounts Receivable (or Trade Debtors) / Credit Sales (or Revenue) x 365

30
Q

Debt to Assets

A

Total Debt (or Total Liabilities)/ Total Assets

31
Q

Leverage Ratio or Total Debt to Total Equity Ratio

A

Total Liability / Total Equity (include minority interest)

32
Q

Long term debts to total equity ratio

A

Long term liability / Total Equity (include minority interest)

33
Q

Time interest earned Ratio

A

PBIT or (Profit from operations) / Interest expense (or Finance cost)

34
Q

ROA

A

PBIT / Total Assets

35
Q

ROA

A

Total Asset Turnover x Profit Margin

36
Q

ROA

A

(Sales/ Total Assets) * (PBIT/Sales)

37
Q

ROE

A

Profit after tax - minority interests (or Net income) / Shareholders’ equity (or Net Assets)

Shareholders equity here (- minority interest)

38
Q

EPS

A

Profit attributable to shareholders (shareholders of parents) / Weight avg. no. of ordinary shares

39
Q

EPS

A

(Profit after tax for the year - minority interest)/ weighted average no of ordinary shares

40
Q

Dividend per share

A

Total Dividend (interim + final) / number of ordinary shares (or share capital)

41
Q

P/E

A

Market price per share/ EPS

42
Q

Net Tangible Assets per share

A

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
Q

Net Asset per share

A

Net assets (or shareholder’s equity) / number of ordinary shares

44
Q

Net book value of fixed assets refers to

A

Cost of fixed assets minus accumulated depreciation

45
Q

PVBR: Price to book value ratio

A

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
Q

Intrinsic Price (or value) of Warrants

A

(Market Price of share - Exercise price) x no of shares each warrant entitles the holder to purchase

47
Q

Theoretical ex-rights price

A

(No of existing shares x Market price) + (No of issues shares x Issues shares price)
_______________________

No of existing + issued

48
Q

Intrinsic value of rights

A

Theoretical ex rights price - rights issue subscription

49
Q

Dividend growth rate (finding g)

A

% retained profits (not to issue as dividend) - ROE %

50
Q

Gordon growth model = Finding the intrinsic value of a share

A

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
Q

Real interest rate or

Real risk free rate of return

A

(1+ Nominal Rate
___________
1 + Inflation Rate ) - 1

52
Q

Dividend Per Share (Alternative equation)

A

EPS x Dividend Payout Ratio

53
Q

Return on sales ratio

A

Operating Profit/ Sales

54
Q

ROE Du Pont Analysis

A

(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
Q

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%

A

P= 50000/ 1 + (0.06 * 90/365)

56
Q

In a Rights Issue: how many does the shareholders’ have the right to purchase before new shares are offered to public?

A

Rights to purchase =

(no of shares stockholders own/ common stock outstanding) x new shares

57
Q

Accounting equation

A

Assets = Liabilities + Equity

58
Q

Expansion of accounting equation

A

Non current assets + current Assets = Long term liabilities + short term liabilities + capital + reserves

59
Q

Dividend Yield

A

DPS/ Market Price per Share

60
Q

Intrinsic Value of CULS

A

Market Price of Ordinary Shares/ Number of CULS required for conversion

61
Q

CAPM : Capital Asset Pricing Model

A

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
Q

WACC: Weighted Average Cost of Capital

A

WACC= (After tax cost of debt x Proportion of debt financing) + (Cost of equity x Proportion of equity financing)

63
Q

Value of the company

A

t=n, E = sum of

Operating Cash Flow / (WACC - growth of operating cash flow)

64
Q

Expressing PE using Earnings Yield

A

Earnings Yield = EPS/ Market Price

Earnings Yield = 1/PE

65
Q

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%

A

FV= deposit + (deposit x rate x day/365)

100,000 + (100,000 * 0.55* 30/365)

66
Q

Ex bonus price

A

Market price * ori total of shares/ new total of shares

67
Q

Warrant premium

A

Premium = market price - intrinsic value

68
Q

Ex all price

A

= (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
Q

Earnings Yield expressing PE

A

Earnings yield = EPS/ Market price

Earnings yield = 1/PER

70
Q

Rate of return on a stock

A

(Ending value - Beginning value) + Dividend

_______________

Beginning value

Value aka market price of stock

Financial Ratios & Calculations (1 decks)

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