Financial Analysis Flashcards
What does the balance sheet show?
Snapshot of company’s financial position at the end of the year
What is the balance sheet identity?
Assets=liabilities+stockholders equity
What is the equation for net working capital?
Net working capital/net current assets = current assets-current liabilities
What is the equation for net book value?
Net book value = acquisition cost-accumulated depreciation
What does the income statement show?
Shows firms revenues and expenses over a given time period
What is the equation for market capitalisation?
Market capitalisation = no. Of shares X market price per share
- total value of shareholder equity
What is the equation for market value added?
MVA = market capitalisation- equity
What is the M/B or P/B ratio?
M/B = market value of equity / book value of equity
- shows how many times investors original investment has been multiplied
What is the equation for enterprise value?
Enterprise value = market value of equity + debt - cash
What are the drawbacks of market value performance measures?
- reflect investors expectations about future performance (not current performance)
- do not explain reasons underlying performance
- limited to information on public companies
What so the equation for EVA?
EVA= residual income = (after-tax interest + net income) - ( cost of capital X capital )
What is after-tax interest + net income?
Net income company would have earned with all equity financing
What is the equation for total capitalisation?
Total capitalisation = long-term debt+shareholders equity
What is the equation for ROC?
ROC=after-tax interest + net income / total capital at start of the year
- uses after-tax interest + net income which is net income available to all investors (debt and equity holders)
- capital provided by debt and equity capital so this measure is appropriate
What is the equation for ROE?
ROE=net income / book value of equity at start of the year
- uses only net income as we are only interested in return to equity holders
What is the equation for ROA?
ROA=after-tax interest + net income / total assets at the start of the year
- uses income available to all investors as capital is financed by debt and equity and assets are financed by capital
What are the advantages of EVA and accounting rates of return?
- reflect current performance and are not affected by expectations of future performance
- can be calculated at the whole company,plant or division level (including private company)
What are the limitations of EVA and accounting rates of return?
- not all assets are accounted in the balance sheet
- based on book value of assets (true value may be different)
What is the equation for asset turnover?
Asset turnover = sales / total assets at start of the year
What is the equation for profit margin?
Profit margin = net income / sales
What is the equation for operating profit margin?
Operating profit margin = after tax interest + net income / sales
What is the equation for inventory turnover?
Inventory turnover = cost of goods sold / investors at start of year
What is the equation for inventory period?
Inventory period = inventory at start of year / daily cost of goods sold
What is the equation for receivables turnover?
Receivables turnover = sales / receivables at start of year
