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CFA Level 1 Formulas > Financial Reporting & Analysis (13-17%) > Flashcards

Financial Reporting & Analysis (13-17%) Flashcards

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1
Q

(2 Versions) What are the Accounting Equations?

A

Assets = Liabilities + Owners’ Equity

or

Assets = Liabilities + Contributed Capital + Beginning Retained Earnings + Revenues – Expenses - Dividends

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2
Q

Basic Earnings Per Share

A

Basic EPS=(𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’βˆ’π‘ƒπ‘Ÿπ‘’π‘“π‘’π‘Ÿπ‘Ÿπ‘’π‘‘ 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠) Γ· π‘Šπ‘’π‘–π‘”β„Žπ‘‘π‘’π‘‘ π΄π‘£π‘’π‘Ÿπ‘Žπ‘”π‘’ π‘π‘’π‘šπ‘π‘’π‘Ÿ π‘œπ‘“ πΆπ‘œπ‘šπ‘šπ‘œπ‘› π‘†β„Žπ‘Žπ‘Ÿπ‘’π‘  π‘‚π‘’π‘‘π‘ π‘‘π‘Žπ‘›π‘‘π‘–π‘›π‘”

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3
Q

Capital Lease

A

Capital Lease; Lessee reports asset and loan on B/S; All risks and benefits of property are transferred to lessee

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4
Q

Cash Conversion Cycle

A
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5
Q

Cash Ratio

A
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6
Q

Current Ratio

A
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7
Q

Days of inventory on hand

A

Days of inventory on hand = Number of days in period Γ· Inventory turnover

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8
Q

Days of sales outstanding

A

Days of sales outstanding = Number of days in period Γ· Receivables turnover

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9
Q

Debt to Assets

A
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10
Q

Debt to Equity

A
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11
Q

Defensive Interval Ratio

A
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12
Q

Deferred Tax Asset (DTA)

A

Arise when excess amount paid for income taxes (taxable income > pre-tax income) 𝐷𝑇𝐴=(π‘‡π‘Žπ‘₯ π΅π‘Žπ‘ π‘’βˆ’πΆπ‘Žπ‘Ÿπ‘Ÿπ‘¦π‘–π‘›π‘” π΄π‘šπ‘œπ‘’π‘›π‘‘)Γ—π‘‡π‘Žπ‘₯ π‘…π‘Žπ‘‘π‘’

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13
Q

Deferred Tax Liabilities (DTL)

A

Appear when a deficit amount exists for income tax payment (taxable income < pre-tax income) 𝐷𝑇𝐿=(πΆπ‘Žπ‘Ÿπ‘Ÿπ‘¦π‘–π‘›π‘” π΄π‘šπ‘œπ‘’π‘›π‘‘βˆ’π‘‡π‘Žπ‘₯ π΅π‘Žπ‘ π‘’)Γ—π‘‡π‘Žπ‘₯ π‘…π‘Žπ‘‘π‘’

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14
Q

Diluted Earnings Per Share

A

𝐷𝑖𝑙𝑒𝑑𝑒𝑑 𝐸𝑃𝑆=𝑁𝑒𝑑 πΌπ‘›π‘π‘œπ‘šπ‘’ Γ· (π‘Šπ‘’π‘–π‘”β„Žπ‘‘π‘’π‘‘ π΄π‘£π‘’π‘Ÿπ‘Žπ‘”π‘’ π‘π‘’π‘šπ‘π‘’π‘Ÿ π‘œπ‘“ πΆπ‘œπ‘šπ‘šπ‘œπ‘› π‘†β„Žπ‘Žπ‘Ÿπ‘’π‘  π‘‚π‘’π‘‘π‘ π‘‘π‘Žπ‘›π‘‘π‘–π‘›π‘” + 𝑁𝑒𝑀 πΆπ‘œπ‘šπ‘šπ‘œπ‘› π‘†β„Žπ‘Žπ‘Ÿπ‘’π‘  𝐼𝑠𝑠𝑒𝑒𝑑 π‘Žπ‘‘ πΆπ‘œπ‘›π‘£π‘’π‘Ÿπ‘ π‘–π‘œπ‘›)

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15
Q

Direct Method (Cash Flow)

A

Direct Method: disclose cash inflows by source and cash outflows by use

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16
Q

Double-Declining Depreciation

A
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17
Q

Effective Tax Rate

A
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18
Q

Financial Asset Measurement

A

Held-for-trading: measured at fair value on B/S, Dividends/Interest and Unrealized/Realized PnL on I/S
Available-for-sale: measured at fair value on B/S; realized PnL I/S; unrealized PnL OCI
Held-to-maturity: Amortized cost on B/S; Coupons/Dividends through I/S; realized Pnl I/S

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19
Q

Financial Leverage

A
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20
Q

Five-Step Revenue Recognition Model

A
  1. Identify the contract(s) with a customer
  2. Identify the separate or distinct performance obligations in the contract
  3. Allocate the transaction price to the performance obligations in the contract
  4. Recognize revenue when (or as) the entity satisfies a performance obligation
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21
Q

Fixed asset turnover

A

Fixed asset turnover = Revenue Γ· Average net fixed assets

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22
Q

Fixed Charge Coverage

A
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23
Q

Free Cash Flow to Equity (FCFE)

A
  1. 𝐹𝐢𝐹𝐸 = 𝐢𝐹𝑂 – 𝐹𝐢𝐼𝑛𝑣 + 𝑁𝑒𝑑 π‘π‘œπ‘Ÿπ‘Ÿπ‘œπ‘€π‘–π‘›π‘”
  2. 𝐹𝐢𝐹𝐸 = 𝑁𝐼 + 𝑁𝐢𝐢 – πΆπ‘Žπ‘πΈπ‘₯ – π›₯π‘Šπ‘œπ‘Ÿπ‘˜π‘–π‘›π‘” πΆπ‘Žπ‘π‘–π‘‘π‘Žπ‘™ + 𝑁𝑒𝑑 π΅π‘œπ‘Ÿπ‘Ÿπ‘œπ‘€π‘–π‘›π‘”
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24
Q

Free Cash Flow to the Firm (FCFF)

A
  1. 𝐹𝐢𝐹𝐹=NI + NCC + Int(1 – Tax rate)– FCInv – WCInv
  2. 𝐹𝐢𝐹𝐹 = CFO + Int(1 – Tax rate)– FCInv
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25
Q

IFRS

A

IFRS
Interest Received: Operating or Investing
Interest Paid: Operating or Financing
Dividends Received: Operating or Investing
Dividends Paid: Operating or Financing

26
Q

Income Tax Expense

A
27
Q

Indirect Method (Cash Flow)

A

Indirect Method: reconcile change in cash from net income with non-cash items and net changes in working capital

28
Q

Interest Coverage

A
29
Q

Inventory turnover

A

Inventory turnover= Cost of sales or cost of goods sold Γ· Average inventory

30
Q

LIFO VS FIFO (FIFO)

A

LIFO is only allowed under US GAAP
Under a period of rising prices and stable or increasing inventory:

  • FIFO leads to:
  • Lower COGS
  • Higher Gross Profit
  • Higher Ending Inventory
  • Lower CFO higher relative taxes
31
Q

LIFO VS FIFO (LIFO)

A

LIFO is only allowed under US GAAP
Under a period of rising prices and stable or increasing inventory:

  • LIFO leads to:
  • Higher COGS
  • Lower Gross Profit
  • Lower Ending Inventory
  • Higher CFO from tax savings
32
Q

Number of days of payables

A

Number of days of payables = Number of days in period Γ· Payables turnover

33
Q

Operating Lease

A

Operating Lease; Lessee reports lease payments; No B/S recognition; All risks and ownership remain with lessor

34
Q

Payables turnover

A

Payables turnover = Purchases Γ· Average trade payables

35
Q

Pension Plans

A
  1. Defined Contribution Plan: Amount of contribution is expensed.
  2. Defined Benefit Plan: Contributions also expensed. Underfunded/Overfunded status appears on B/S as an A or L.
36
Q

Quick Ratio

A
37
Q

Receivables Turnover

A

Receivables Turnover = Revenue Γ· Average receivables

38
Q

Revenue Recognition Principles

A

Requirements: 1) Risk and reward of ownership is transferred 2) Collectability is probable

39
Q

Straight-Line Depreciation

A
40
Q

Total asset turnover

A

Total asset turnover = Revenue Γ· Average total assets

41
Q

Units of Production Depreciation

A
42
Q

US GAAP

A

US GAAP
Interest Received: Operating
Interest Paid: Operating
Dividends Received: Operating
Dividends Paid: Financing

43
Q

Weighted Average Cost per Unit

A

π‘Šπ‘’π‘–π‘”β„Žπ‘‘π‘’π‘‘ π‘Žπ‘£π‘’π‘Ÿπ‘Žπ‘”π‘’ π‘π‘œπ‘ π‘‘ π‘π‘’π‘Ÿ 𝑒𝑛𝑖𝑑 = πΆπ‘œπ‘ π‘‘ π‘œπ‘“ π‘”π‘œπ‘œπ‘‘π‘  π‘Žπ‘£π‘Žπ‘–π‘™π‘Žπ‘π‘™π‘’ π‘“π‘œπ‘Ÿ π‘ π‘Žπ‘™π‘’ Γ· π‘π‘’π‘šπ‘π‘’π‘Ÿ π‘œπ‘“ 𝑒𝑛𝑖𝑑𝑠 π‘Žπ‘£π‘Žπ‘–π‘™π‘Žπ‘π‘™π‘’ π‘“π‘œπ‘Ÿ π‘ π‘Žπ‘™π‘’

44
Q

Cost of Goods Sold (FIFO/LIFO)

A

𝐢𝑂𝐺𝑆 = 𝐡𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 πΌπ‘›π‘£π‘’π‘›π‘‘π‘œπ‘Ÿπ‘¦+π‘ƒπ‘’π‘Ÿπ‘β„Žπ‘Žπ‘ π‘’π‘ βˆ’πΈπ‘›π‘‘π‘–π‘›π‘” πΌπ‘›π‘£π‘’π‘›π‘‘π‘œπ‘Ÿπ‘¦

45
Q

LIFO to FIFO Conversion

A
  1. 𝐹𝐼𝐹𝑂 𝐢𝑂𝐺𝑆=𝐿𝐼𝐹𝑂 πΆπ‘‚πΊπ‘†βˆ’(𝐸𝑛𝑑𝑖𝑛𝑔 𝐿𝐼𝐹𝑂 π‘Ÿπ‘’π‘ π‘’π‘Ÿπ‘£π‘’βˆ’π΅π‘’π‘”π‘–π‘›π‘›π‘–π‘›π‘” 𝐿𝐼𝐹𝑂 π‘Ÿπ‘’π‘ π‘’π‘Ÿπ‘£π‘’)
  2. 𝐹𝐼𝐹𝑂 𝐸𝑛𝑑𝑖𝑛𝑔 πΌπ‘›π‘£π‘’π‘›π‘‘π‘œπ‘Ÿπ‘¦=𝐿𝐼𝐹𝑂 𝐸𝑛𝑑𝑖𝑛𝑔 πΌπ‘›π‘£π‘’π‘›π‘‘π‘œπ‘Ÿπ‘¦+𝐿𝐼𝐹𝑂 π‘Ÿπ‘’π‘ π‘’π‘Ÿπ‘£π‘’
  3. 𝑁𝑒𝑑 πΌπ‘›π‘π‘œπ‘šπ‘’(𝐹𝐼𝐹𝑂)=𝑁𝑒𝑑 πΌπ‘›π‘π‘œπ‘šπ‘’(𝐿𝐼𝐹𝑂)+(𝐸𝑛𝑑𝑖𝑛𝑔 𝐿𝐼𝐹𝑂 π‘Ÿπ‘’π‘ π‘’π‘Ÿπ‘£π‘’βˆ’π΅π‘’π‘”π‘–π‘›π‘–π‘›π‘” 𝐿𝐼𝐹𝑂 π‘Ÿπ‘’π‘ π‘’π‘Ÿπ‘£π‘’)Γ—(1βˆ’π‘‘π‘Žπ‘₯ π‘Ÿπ‘Žπ‘‘π‘’)
  4. LIFO liquidation occurs when older LIFO inventory is sold (Ending LIFO reserve < Beginning LIFO reserve)
46
Q

Inventory Measure (IFRS & GAAP)

A
  1. IFRS: Lower of Cost and Net Realisable Value (NRV)
  2. US GAAP: Lower of Cost, Market Value or Net Realisable Value (NRV)
  3. 𝑁𝑅𝑉=𝐸π‘₯𝑝𝑒𝑐𝑑𝑒𝑑 π‘ π‘Žπ‘™π‘’π‘  π‘π‘Ÿπ‘–π‘π‘’βˆ’πΈπ‘ π‘‘π‘–π‘šπ‘Žπ‘‘π‘’π‘‘ 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 π‘π‘œπ‘ π‘‘π‘ βˆ’πΆπ‘œπ‘šπ‘π‘™π‘’π‘‘π‘–π‘œπ‘› π‘π‘œπ‘ π‘‘π‘ 
47
Q

Revaluation of Long-Lived Assets

A
  1. US GAAP: Revaluation Prohibited
  2. IFRS: Revaluation recognized in net income to the point it reverses previous impairment losses; additional gains go into revaluation surplus
48
Q

Capitalizing vs. Expensing

A
  1. Capitalizing: smooths net income impact; higher ROE and ROA initially; lower ROE and ROA later on;
  2. Expensing: short-term net income decline; lower ROE and ROA initially; higher ROE and ROA later on;
49
Q

Deferred Tax Asset (DTA)

A

Arise when excess amount paid for income taxes (taxable income > pre-tax income) 𝐷𝑇𝐴=(π‘‡π‘Žπ‘₯ π΅π‘Žπ‘ π‘’βˆ’πΆπ‘Žπ‘Ÿπ‘Ÿπ‘¦π‘–π‘›π‘” π΄π‘šπ‘œπ‘’π‘›π‘‘)Γ—π‘‡π‘Žπ‘₯ π‘…π‘Žπ‘‘π‘’

50
Q

Deferred Tax Liabilities (DTL)

A

Appear when a deficit amount exists for income tax payment (taxable income < pre-tax income) 𝐷𝑇𝐿=(πΆπ‘Žπ‘Ÿπ‘Ÿπ‘¦π‘–π‘›π‘” π΄π‘šπ‘œπ‘’π‘›π‘‘βˆ’π‘‡π‘Žπ‘₯ π΅π‘Žπ‘ π‘’)Γ—π‘‡π‘Žπ‘₯ π‘…π‘Žπ‘‘π‘’

51
Q

Gross Profit Margin

A

πΊπ‘Ÿπ‘œπ‘ π‘  π‘π‘Ÿπ‘œπ‘“π‘–π‘‘ π‘šπ‘Žπ‘Ÿπ‘”π‘–π‘›=πΊπ‘Ÿπ‘œπ‘ π‘  π‘π‘Ÿπ‘œπ‘“π‘–π‘‘ Γ· 𝑅𝑒𝑣𝑒𝑛𝑒𝑒

52
Q

Net Profit Margin

A

𝑁𝑒𝑑 π‘π‘Ÿπ‘œπ‘“π‘–π‘‘ π‘šπ‘Žπ‘Ÿπ‘”π‘–π‘›=𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’ Γ· 𝑅𝑒𝑣𝑒𝑛𝑒𝑒

53
Q

Operating Profit Margin

A

π‘‚π‘π‘’π‘Ÿπ‘Žπ‘‘π‘–π‘›π‘” π‘π‘Ÿπ‘œπ‘“π‘–π‘‘ π‘šπ‘Žπ‘Ÿπ‘”π‘–π‘›=π‘‚π‘π‘’π‘Ÿπ‘Žπ‘‘π‘–π‘›π‘” π‘–π‘›π‘π‘œπ‘šπ‘’ Γ· 𝑅𝑒𝑣𝑒𝑛𝑒𝑒

54
Q

Return on Assets

A

ROA=𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’ Γ· π΄π‘£π‘’π‘Ÿπ‘Žπ‘”π‘’ π‘‘π‘œπ‘‘π‘Žπ‘™ π‘Žπ‘ π‘ π‘’π‘‘π‘ 

55
Q

Return on Equity

A

ROE= 𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’ Γ· π΄π‘£π‘’π‘Ÿπ‘Žπ‘”π‘’ π‘‘π‘œπ‘‘π‘Žπ‘™ π‘’π‘žπ‘’π‘–π‘‘π‘¦

56
Q

Du Pont Analysis (Traditional)

A
57
Q

Du Pont Analysis (Extended)

A
58
Q

Dividend Payout Ratio

A

Dividends payout ratio = Common share dividends Γ· Net income attributable to common shares

59
Q

Retention Rate

A

Retention rate= (Net income attributable to common shares –Common share dividends) Γ·Net income attributable to common shares

60
Q

Sustainable Growth Rate

A

Sustainable growth rate (g) =𝑏 Γ— ROE

CFA Level 1 Formulas (10 decks)

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