Financial Reporting

Question 1

What is the basic accounting equation?

Answer 1

Assets = Liabilities + Equity

Question 2

What is the formula for net income?

Answer 2

Net income = Revenue - Expenses

Question 3

How is gross profit calculated?

Answer 3

Gross profit (income) = Revenue - Cost of goods sold

Question 4

What does operating profit (income) represent?

Answer 4

Operating profit (income) = Profit before interest and tax (PBIT) = Gross profit - Operating expenses

Question 5

How is profit before tax (PBT) calculated?

Answer 5

Profit before tax (PBT) = PBIT - Interest expense

Question 6

What is the formula for net profit (income)?

Answer 6

Net profit (income) = PBT - Tax expense = Operating profit - Interest Expense - Tax expense

Question 7

What is the formula for Basic Earnings per Share (EPS)?

Answer 7

Basic EPS = (Net Income - Preferred Dividends) / Weighted average number of common shares outstanding

Question 8

What is the formula for Diluted Earnings per Share (DEPS)?

Answer 8

Diluted EPS = Adjusted income available for common shares / Weighted average common and potential common shares outstanding

Question 9

What adjustments are made to calculate Diluted EPS?

Answer 9

Adjustments include:
* Preferred income dividends
* Convertible preferred dividends
* Convertible debt interest (1 - t)

Question 10

What is Gross Profit Margin?

Answer 10

Gross Profit Margin = Gross Profit / Revenue

Question 11

What is Net Profit Margin?

Answer 11

Net Profit Margin = Net Profit / Revenue

Question 12

Fill in the blank: Basic EPS = (Net Income - Preferred Dividends) / _______.

Answer 12

Weighted average number of common shares outstanding

Question 13

Fill in the blank: Diluted EPS = Adjusted income available for common shares / _______.

Answer 13

Weighted average common and potential common shares outstanding

Question 14

True or False: Diluted EPS accounts for potential shares from stock options.

Answer 14

True

Question 15

What components are included in the calculation of Diluted EPS?

Answer 15

Components include:
* Weighted average shares
* Shares from conversion of convertible debt
* Shares issuable from stock options

Question 16

What is the formula for the Current Ratio?

Answer 16

Current ratio = Current assets / Current liabilities

This ratio assesses a company’s ability to pay short-term obligations.

Question 17

How is the Quick Ratio calculated?

Answer 17

Quick ratio = (Cash + Short-term marketable securities + Receivables) / Current liabilities

This ratio measures the ability to meet short-term obligations without relying on inventory.

Question 18

What does the Cash Ratio measure?

Answer 18

Cash ratio = (Cash + Short-term marketable securities) / Current liabilities

This ratio indicates a company’s liquidity position by comparing cash and cash equivalents to current liabilities.

Question 19

What is the formula for Long-term Debt-to-Equity ratio?

Answer 19

Long-term debt-to-equity = Long-term debt / Total equity

This ratio evaluates the proportion of long-term debt to shareholders’ equity.

Question 20

What is the formula for Total Debt-to-Equity ratio?

Answer 20

Total debt-to-equity = Total debt / Total equity

This ratio provides insight into the financial leverage and risk of a company.

Question 21

How is the Debt Ratio calculated?

Answer 21

Debt ratio = Total debt / Total assets

This ratio measures the proportion of a company’s assets that are financed by debt.

Question 22

What does Financial Leverage indicate?

Answer 22

Financial leverage = Total debt / Total equity

This ratio shows the extent to which a company uses debt to finance its assets.

Question 23

What are current assets?

Answer 23

Current assets are assets expected to be converted into cash or used within one year.

Examples include cash, inventory, and accounts receivable.

Question 24

What are current liabilities?

Answer 24

Current liabilities are obligations expected to be settled within one year.

Examples include accounts payable and short-term debt.

Question 25

True or False: The Quick Ratio includes inventory in its calculation.

Answer 25

False ## Footnote The Quick Ratio excludes inventory to provide a more stringent measure of liquidity.

Question 26

Fill in the blank: The _______ measures a company's ability to meet its short-term obligations using its most liquid assets.

Answer 26

Quick Ratio ## Footnote This ratio is often referred to as the acid-test ratio.

Question 27

What is the formula for Debt ratio?

Answer 27

Debt ratio = Total debt / Total assets ## Footnote This ratio indicates the proportion of a company's assets that are financed by debt.

Question 28

How is Financial leverage calculated?

Answer 28

Financial leverage = Total assets / Total equity ## Footnote This measure shows the extent to which a company uses debt to acquire assets.

Question 29

What does FCFF stand for in cash flow measures?

Answer 29

FCFF = Free Cash Flow to the Firm ## Footnote It represents the cash available to all investors, both equity and debt holders.

Question 30

What is the formula for Free Cash Flow to the Firm (FCFF)?

Answer 30

FCFF = CFO + [Int x (1 - tax rate)] - FCInv ## Footnote CFO is Cash flow from operations, Int is Cash interest paid, and FCInv is Fixed capital investment.

Question 31

What does CFO represent in cash flow calculations?

Answer 31

CFO = Cash flow from operations ## Footnote It measures the cash generated from the company's core business activities.

Question 32

What does NI stand for in the context of cash flow statements?

Answer 32

NI = Net income ## Footnote Net income is the profit of a company after all expenses and taxes have been deducted.

Question 33

What is the formula for Free Cash Flow to Equity (FCFE)?

Answer 33

FCFE = CFO - FCInv + Net borrowing ## Footnote Net borrowing is calculated as Debt issued - Debt repaid.

Question 34

What does WCInv represent?

Answer 34

WCInv = Working capital investment ## Footnote It indicates the cash tied up in the company's operations.

Question 35

What is the formula for Cash flow-to-revenue ratio?

Answer 35

Cash flow-to-revenue = Cash flow from operations / Revenue ## Footnote This ratio measures the efficiency of cash generation relative to revenue.

Question 36

How is Cash-to-income ratio calculated?

Answer 36

Cash-to-income = Cash flow from operations / Operating income ## Footnote This ratio assesses the relationship between cash flow from operations and operating income.

Question 37

What does Cash return-on-assets (ROA) measure?

Answer 37

Cash return-on-assets = Cash flow from operations / Average total assets ## Footnote It indicates how effectively a company uses its assets to generate cash.

Question 38

What is the formula for Cash return-on-equity (ROE)?

Answer 38

Cash return-on-equity = Cash flow from operations / Average total equity ## Footnote This ratio measures the cash generated per dollar of equity.

Question 39

How is Cash flow per share calculated?

Answer 39

Cash flow per share = (CFO - Preferred dividends) / Weighted average number of common shares ## Footnote This metric indicates the cash flow available to each share of common stock.

Question 40

What is the formula for Debt coverage?

Answer 40

Debt coverage = Cash flow from operations / Total debt

Question 41

What does Interest coverage measure?

Answer 41

Interest coverage = (CFO + Interest paid + Taxes paid) / Interest paid

Question 42

How is the Reinvestment ratio calculated?

Answer 42

Reinvestment ratio = Cash paid to acquire long-term assets / Cash flow from operations

Question 43

What does Debt payment represent?

Answer 43

Debt payment = Cash paid to repay long-term debt

Question 44

How do you calculate Dividend payment?

Answer 44

Dividend payment = Cash flow from operations / Dividends paid

Question 45

What is the Investing and financing ratio?

Answer 45

Investing and financing ratio = Cash flow from operations / Cash outflows from investing and financing activities

Question 46

Fill in the blank: Debt coverage = _______ / Total debt.

Answer 46

Cash flow from operations

Question 47

Fill in the blank: Interest coverage = (CFO + Interest paid + Taxes paid) / _______.

Answer 47

Interest paid

Question 48

True or False: The Reinvestment ratio indicates the proportion of cash flow used for acquiring long-term assets.

Answer 48

True

Question 49

True or False: The Dividend payment ratio measures the cash flow available for dividends relative to total debt.

Answer 49

False

Question 50

What is the formula for Debt coverage?

Answer 50

Debt coverage = Cash flow from operations / Total debt

Question 51

What does Interest coverage measure?

Answer 51

Interest coverage = (CFO + Interest paid + Taxes paid) / Interest paid

Question 52

How is the Reinvestment ratio calculated?

Answer 52

Reinvestment ratio = Cash paid to acquire long-term assets / Cash flow from operations

Question 53

What does Debt payment represent?

Answer 53

Debt payment = Cash paid to repay long-term debt

Question 54

How do you calculate Dividend payment?

Answer 54

Dividend payment = Cash flow from operations / Dividends paid

Question 55

What is the Investing and financing ratio?

Answer 55

Investing and financing ratio = Cash flow from operations / Cash outflows from investing and financing activities

Question 56

Fill in the blank: Debt coverage = _______ / Total debt.

Answer 56

Cash flow from operations

Question 57

Fill in the blank: Interest coverage = (CFO + Interest paid + Taxes paid) / _______.

Answer 57

Interest paid

Question 58

True or False: The Reinvestment ratio indicates the proportion of cash flow used for acquiring long-term assets.

Answer 58

True

Question 59

True or False: The Dividend payment ratio measures the cash flow available for dividends relative to total debt.

Answer 59

False