Financial Report Flashcards
Formula for Equity ratio
Total equity / Total assets
What does the equity ratio show?
Shows the amount of leverage a company has
How well company manages debt
- Low ratio = Company used debt to gain assets
- High ratio =
Explain what a high and low equity ratio show
Low = Company used debt to gain assets (Higher risk)
What does a high equity ratio show
Debt was not used as much for gaining assets
Shareholder equity was used to raise capital instead
What is Market Cap
Measure of companies overall value
How to calculate Market Cap
No. of outstanding shares x Share price
What does EPS show
Share of company profit for individual shareholders
What are the types of assets
Current
Non-Current / Long term
What are assets? Formula?
Show everything company owns
Assets = Liabilities + Shareholders equity
What are liabilities
Everything the company owes (Current & Non-Current)
Types of liabilities
Current = Obligation before 1 year
Non-Current /Long Term = Obligation in 1 year +
What is shareholders equity
Company’s net worth
Amount that would be returned to the owners if the company was liquidated.
Formula for Shareholders Equity
Assets - Liabilities
What are some red flags / bad signs when reading a balance sheet
Cash & Cash Equiv below total debt
Lower than .5 equity ratio - Shows debt was used to purchase assets
Preferred stock - Ideally want none
Intangible assets - More than 50% of total
Good will
Inventory rising faster than assets
Preferred Shares
Stocks with - First rights to dividends in case of bankruptcy
FIXED dividend rate
DO NOT fluctuate with company performance
Ordinary Shares
No voting rights
No priority on dividends
Rates of dividends fluctuate with performance
What is the difference between Debt/Equity ratio and Equity/Asset ratio
Debt/Equity = Liabilities divide Total equity (This shows the debt compared to equity)
Equity/Asset Ratio = Total equity divide Total Assets
(How much of assets were purchased through capital)
Two types of ratios
Debt/Equity Ratio
Equity(Asset) Ratio
What is a bad Equity ratio (Equity/Asset Ratio)
Ideally over 0.5
But under 10% (0.1) is bad for an UWR
How to work out ILF in excel
Layer below, divide current layer
How to total a column in excel
=sum(X1:X10)
