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Valuation > Financial Reporting > Flashcards

Financial Reporting Flashcards

1
Q

What is the basic accounting equation?

A

Assets = Liabilities + Equity

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2
Q

What is the formula for net income?

A

Net income = Revenue - Expenses

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3
Q

How is gross profit calculated?

A

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

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4
Q

What does operating profit (income) represent?

A

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

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5
Q

How is profit before tax (PBT) calculated?

A

Profit before tax (PBT) = PBIT - Interest expense

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6
Q

What is the formula for net profit (income)?

A

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

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7
Q

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

A

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

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8
Q

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

A

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

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9
Q

What adjustments are made to calculate Diluted EPS?

A

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

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10
Q

What is Gross Profit Margin?

A

Gross Profit Margin = Gross Profit / Revenue

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11
Q

What is Net Profit Margin?

A

Net Profit Margin = Net Profit / Revenue

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12
Q

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

A

Weighted average number of common shares outstanding

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13
Q

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

A

Weighted average common and potential common shares outstanding

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14
Q

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

A

True

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15
Q

What components are included in the calculation of Diluted EPS?

A

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

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16
Q

What is the formula for the Current Ratio?

A

Current ratio = Current assets / Current liabilities

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

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17
Q

How is the Quick Ratio calculated?

A

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

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

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18
Q

What does the Cash Ratio measure?

A

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.

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19
Q

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

A

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

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

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20
Q

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

A

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

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

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21
Q

How is the Debt Ratio calculated?

A

Debt ratio = Total debt / Total assets

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

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22
Q

What does Financial Leverage indicate?

A

Financial leverage = Total debt / Total equity

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

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23
Q

What are current assets?

A

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

Examples include cash, inventory, and accounts receivable.

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24
Q

What are current liabilities?

A

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

Examples include accounts payable and short-term debt.

25
Q

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

A

False

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

26
Q

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

A

Quick Ratio

This ratio is often referred to as the acid-test ratio.

27
Q

What is the formula for Debt ratio?

A

Debt ratio = Total debt / Total assets

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

28
Q

How is Financial leverage calculated?

A

Financial leverage = Total assets / Total equity

This measure shows the extent to which a company uses debt to acquire assets.

29
Q

What does FCFF stand for in cash flow measures?

A

FCFF = Free Cash Flow to the Firm

It represents the cash available to all investors, both equity and debt holders.

30
Q

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

A

FCFF = CFO + [Int x (1 - tax rate)] - FCInv

CFO is Cash flow from operations, Int is Cash interest paid, and FCInv is Fixed capital investment.

31
Q

What does CFO represent in cash flow calculations?

A

CFO = Cash flow from operations

It measures the cash generated from the company’s core business activities.

32
Q

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

A

NI = Net income

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

33
Q

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

A

FCFE = CFO - FCInv + Net borrowing

Net borrowing is calculated as Debt issued - Debt repaid.

34
Q

What does WCInv represent?

A

WCInv = Working capital investment

It indicates the cash tied up in the company’s operations.

35
Q

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

A

Cash flow-to-revenue = Cash flow from operations / Revenue

This ratio measures the efficiency of cash generation relative to revenue.

36
Q

How is Cash-to-income ratio calculated?

A

Cash-to-income = Cash flow from operations / Operating income

This ratio assesses the relationship between cash flow from operations and operating income.

37
Q

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

A

Cash return-on-assets = Cash flow from operations / Average total assets

It indicates how effectively a company uses its assets to generate cash.

38
Q

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

A

Cash return-on-equity = Cash flow from operations / Average total equity

This ratio measures the cash generated per dollar of equity.

39
Q

How is Cash flow per share calculated?

A

Cash flow per share = (CFO - Preferred dividends) / Weighted average number of common shares

This metric indicates the cash flow available to each share of common stock.

40
Q

What is the formula for Debt coverage?

A

Debt coverage = Cash flow from operations / Total debt

41
Q

What does Interest coverage measure?

A

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

42
Q

How is the Reinvestment ratio calculated?

A

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

43
Q

What does Debt payment represent?

A

Debt payment = Cash paid to repay long-term debt

44
Q

How do you calculate Dividend payment?

A

Dividend payment = Cash flow from operations / Dividends paid

45
Q

What is the Investing and financing ratio?

A

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

46
Q

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

A

Cash flow from operations

47
Q

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

A

Interest paid

48
Q

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

A

True

49
Q

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

A

False

50
Q

What is the formula for Debt coverage?

A

Debt coverage = Cash flow from operations / Total debt

51
Q

What does Interest coverage measure?

A

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

52
Q

How is the Reinvestment ratio calculated?

A

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

53
Q

What does Debt payment represent?

A

Debt payment = Cash paid to repay long-term debt

54
Q

How do you calculate Dividend payment?

A

Dividend payment = Cash flow from operations / Dividends paid

55
Q

What is the Investing and financing ratio?

A

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

56
Q

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

A

Cash flow from operations

57
Q

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

A

Interest paid

58
Q

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

A

True

59
Q

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

A

False

Valuation (7 decks)

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