Financial Reporting & Analysis (13-17%) Flashcards
(2 Versions) What are the Accounting Equations?
Assets = Liabilities + Ownersβ Equity
or
Assets = Liabilities + Contributed Capital + Beginning Retained Earnings + Revenues β Expenses - Dividends
Basic Earnings Per Share
Basic EPS=(πππ‘ ππππππβπππππππππ πππ£ππππππ ) Γ· ππππβπ‘ππ π΄π£πππππ ππ’ππππ ππ πΆπππππ πβππππ ππ’π‘π π‘ππππππ
Capital Lease
Capital Lease; Lessee reports asset and loan on B/S; All risks and benefits of property are transferred to lessee
Cash Conversion Cycle
Cash Ratio
Current Ratio
Days of inventory on hand
Days of inventory on hand = Number of days in period Γ· Inventory turnover
Days of sales outstanding
Days of sales outstanding = Number of days in period Γ· Receivables turnover
Debt to Assets
Debt to Equity
Defensive Interval Ratio
Deferred Tax Asset (DTA)
Arise when excess amount paid for income taxes (taxable income > pre-tax income) π·ππ΄=(πππ₯ π΅ππ πβπΆππππ¦πππ π΄πππ’ππ‘)Γπππ₯ π ππ‘π
Deferred Tax Liabilities (DTL)
Appear when a deficit amount exists for income tax payment (taxable income < pre-tax income) π·ππΏ=(πΆππππ¦πππ π΄πππ’ππ‘βπππ₯ π΅ππ π)Γπππ₯ π ππ‘π
Diluted Earnings Per Share
π·πππ’π‘ππ πΈππ=πππ‘ πΌπππππ Γ· (ππππβπ‘ππ π΄π£πππππ ππ’ππππ ππ πΆπππππ πβππππ ππ’π‘π π‘ππππππ + πππ€ πΆπππππ πβππππ πΌπ π π’ππ ππ‘ πΆπππ£πππ πππ)
Direct Method (Cash Flow)
Direct Method: disclose cash inflows by source and cash outflows by use
Double-Declining Depreciation
Effective Tax Rate
Financial Asset Measurement
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
Financial Leverage
Five-Step Revenue Recognition Model
- Identify the contract(s) with a customer
- Identify the separate or distinct performance obligations in the contract
- Allocate the transaction price to the performance obligations in the contract
- Recognize revenue when (or as) the entity satisfies a performance obligation
Fixed asset turnover
Fixed asset turnover = Revenue Γ· Average net fixed assets
Fixed Charge Coverage
Free Cash Flow to Equity (FCFE)
- πΉπΆπΉπΈ = πΆπΉπ β πΉπΆπΌππ£ + πππ‘ ππππππ€πππ
- πΉπΆπΉπΈ = ππΌ + ππΆπΆ β πΆπππΈπ₯ β π₯πππππππ πΆππππ‘ππ + πππ‘ π΅πππππ€πππ
Free Cash Flow to the Firm (FCFF)
- πΉπΆπΉπΉ=NI + NCC + Int(1 β Tax rate)β FCInv β WCInv
- πΉπΆπΉπΉ = CFO + Int(1 β Tax rate)β FCInv
IFRS
IFRS
Interest Received: Operating or Investing
Interest Paid: Operating or Financing
Dividends Received: Operating or Investing
Dividends Paid: Operating or Financing
Income Tax Expense
Indirect Method (Cash Flow)
Indirect Method: reconcile change in cash from net income with non-cash items and net changes in working capital
Interest Coverage
Inventory turnover
Inventory turnover= Cost of sales or cost of goods sold Γ· Average inventory
LIFO VS FIFO (FIFO)
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
LIFO VS FIFO (LIFO)
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
Number of days of payables
Number of days of payables = Number of days in period Γ· Payables turnover
Operating Lease
Operating Lease; Lessee reports lease payments; No B/S recognition; All risks and ownership remain with lessor
Payables turnover
Payables turnover = Purchases Γ· Average trade payables
Pension Plans
- Defined Contribution Plan: Amount of contribution is expensed.
- Defined Benefit Plan: Contributions also expensed. Underfunded/Overfunded status appears on B/S as an A or L.
Quick Ratio
Receivables Turnover
Receivables Turnover = Revenue Γ· Average receivables
Revenue Recognition Principles
Requirements: 1) Risk and reward of ownership is transferred 2) Collectability is probable
Straight-Line Depreciation
Total asset turnover
Total asset turnover = Revenue Γ· Average total assets
Units of Production Depreciation
US GAAP
US GAAP
Interest Received: Operating
Interest Paid: Operating
Dividends Received: Operating
Dividends Paid: Financing
Weighted Average Cost per Unit
ππππβπ‘ππ ππ£πππππ πππ π‘ πππ π’πππ‘ = πΆππ π‘ ππ πππππ ππ£πππππππ πππ π πππ Γ· ππ’ππππ ππ π’πππ‘π ππ£πππππππ πππ π πππ
Cost of Goods Sold (FIFO/LIFO)
πΆππΊπ = π΅ππππππππ πΌππ£πππ‘πππ¦+ππ’ππβππ ππ βπΈπππππ πΌππ£πππ‘πππ¦
LIFO to FIFO Conversion
- πΉπΌπΉπ πΆππΊπ=πΏπΌπΉπ πΆππΊπβ(πΈπππππ πΏπΌπΉπ πππ πππ£πβπ΅ππππππππ πΏπΌπΉπ πππ πππ£π)
- πΉπΌπΉπ πΈπππππ πΌππ£πππ‘πππ¦=πΏπΌπΉπ πΈπππππ πΌππ£πππ‘πππ¦+πΏπΌπΉπ πππ πππ£π
- πππ‘ πΌπππππ(πΉπΌπΉπ)=πππ‘ πΌπππππ(πΏπΌπΉπ)+(πΈπππππ πΏπΌπΉπ πππ πππ£πβπ΅πππππππ πΏπΌπΉπ πππ πππ£π)Γ(1βπ‘ππ₯ πππ‘π)
- LIFO liquidation occurs when older LIFO inventory is sold (Ending LIFO reserve < Beginning LIFO reserve)
Inventory Measure (IFRS & GAAP)
- IFRS: Lower of Cost and Net Realisable Value (NRV)
- US GAAP: Lower of Cost, Market Value or Net Realisable Value (NRV)
- ππ π=πΈπ₯ππππ‘ππ π ππππ πππππβπΈπ π‘ππππ‘ππ π ππππππ πππ π‘π βπΆππππππ‘πππ πππ π‘π
Revaluation of Long-Lived Assets
- US GAAP: Revaluation Prohibited
- IFRS: Revaluation recognized in net income to the point it reverses previous impairment losses; additional gains go into revaluation surplus
Capitalizing vs. Expensing
- Capitalizing: smooths net income impact; higher ROE and ROA initially; lower ROE and ROA later on;
- Expensing: short-term net income decline; lower ROE and ROA initially; higher ROE and ROA later on;
Deferred Tax Asset (DTA)
Arise when excess amount paid for income taxes (taxable income > pre-tax income) π·ππ΄=(πππ₯ π΅ππ πβπΆππππ¦πππ π΄πππ’ππ‘)Γπππ₯ π ππ‘π
Deferred Tax Liabilities (DTL)
Appear when a deficit amount exists for income tax payment (taxable income < pre-tax income) π·ππΏ=(πΆππππ¦πππ π΄πππ’ππ‘βπππ₯ π΅ππ π)Γπππ₯ π ππ‘π
Gross Profit Margin
πΊπππ π ππππππ‘ ππππππ=πΊπππ π ππππππ‘ Γ· π ππ£πππ’π
Net Profit Margin
πππ‘ ππππππ‘ ππππππ=πππ‘ ππππππ Γ· π ππ£πππ’π
Operating Profit Margin
ππππππ‘πππ ππππππ‘ ππππππ=ππππππ‘πππ ππππππ Γ· π ππ£πππ’π
Return on Assets
ROA=πππ‘ ππππππ Γ· π΄π£πππππ π‘ππ‘ππ ππ π ππ‘π
Return on Equity
ROE= πππ‘ ππππππ Γ· π΄π£πππππ π‘ππ‘ππ πππ’ππ‘π¦
Du Pont Analysis (Traditional)
Du Pont Analysis (Extended)
Dividend Payout Ratio
Dividends payout ratio = Common share dividends Γ· Net income attributable to common shares
Retention Rate
Retention rate= (Net income attributable to common shares βCommon share dividends) Γ·Net income attributable to common shares
Sustainable Growth Rate
Sustainable growth rate (g) =π Γ ROE