Financial Reporting & Analysis

Question 1

Cash conversion cycle (a.k.a. net operating cycle)

Answer 1

(Inventory turnover + Receivable TO - Payables TO)*365

Question 2

Inventory turnover

Answer 2

COGS/Average inventory

Question 3

Receivables turnover

Answer 3

Sales/Average AR

Question 4

Payables turnover

Answer 4

Purchases/Average AP COGS can be used instead of Purchases

Question 5

Cash Flow statement - interest paid

IFRS vs US GAAP

Answer 5

IFRS - financing or operating US GAAP - operating only

Question 6

FCFF

Answer 6

Net income + Non-cash +interest expense(1-t) - capex - working capital exp.

Non-cash include gain on sale (если Psale > BV, то разницу добавляем обратно в CF)

Question 7

Pension Expense

Answer 7

Defined contribution plan + Defined benefit plan

Question 8

Debt-to-capital

Answer 8

Total debt/ (total debt + total Shareholders equity)

*Total debt include only interest bearing debt

Question 9

Intangibles must be valued at historical cost (US or IFRS?)

Answer 9

US GAAP

Question 10

Current Assets/Liabilities before long-term (US or IFRS?)

Answer 10

US GAAP

Question 11

IFRS: financial information fundamentals

Answer 11

• Relevance
• Faithful representation

Question 12

Deferred tax balance

Answer 12

Temporary difference balance * tax

Question 13

Compound annual growth rate

Answer 13

Question 14

ROE

Answer 14

• ROA * Financial leverage
• Net profit margin * asset turnover * financial leverage
• ROE = operating profit margin * asset turnover - interest expense rate * equity multiplier * tax retention
• net profit margin * asset turnover * equity multiplier
• ROE = Tax burden × Interest burden × Earnings before interest and taxes margin × Asset turnover × Leverage.

Question 15

Cash to income

Answer 15

CFO/Operating income

Question 16

Fixed charge coverage ratio

Answer 16

(NI + Income tax exp + Interest + Lease)/(Interest + Lease)

Question 17

Financial leverage ratio

Answer 17

Avg. Total Assets/ Avg. Total Equity

Question 18

Quick ratio

Answer 18

Question 19

The present value of the operating leases should be added to

Answer 19

both the total debt and the total assets.

Question 20

OFFTOPIC:

BGN mode value = ?

Answer 20

END mode value * (1+i)

Question 21

Net realizable value (NRV)

Answer 21

estimated selling price less the estimated costs necessary to get the inventory ready for sale and make the sale

Question 22

IFRS:

condition that must be met for revenue recognition to occur

Answer 22

• costs incurred can be reliably measured
• the seller knows what it expects to collect and is reasonably certain of collection
• the significant risks and rewards of ownership have been transferred, which is normally (but not always) when the goods have been delivered.

Question 23

Cash flow from operations calculation:

Answer 23

Question 24

Sarbanes–Oxley Act

Answer 24

The adequacy of internal control over financial reporting

Question 25

Diluted EPS calculation

Answer 25

(net income - preferred dividends) + convertible preferred dividend + (convertible debt interest \* (1-t)) Divided by weighted average shares + shares from conversion of convertible preferred shares + shares from conversion of convertible debt + shares issuable from stock options.

Question 26

A company issued a $50,000 seven-year bond for $47,565. The bonds pay 9% per annum, and the yield to maturity at issue was 10%. The company uses the effective interest rate method to amortize any discounts or premiums on bonds. After the first year, the yield to maturity on bonds equivalent in risk and maturity to these bonds is 9%. The amount of the bond discount amortization recorded in the first year is closest to:

Answer 26

Question 27

sustainable growth rate ?

Answer 27

* g=RR\*ROE * RR= 1 - dividend payout ratio

Question 28

Financial ratios alone are not sufficient to determine

Answer 28

creditworthiness of a company

Question 29

Bonds payable issued by a company are financial liabilities that are usually measured at

Answer 29

amortized cost.

Question 30

(under IFRS ) Dividends received can be classified as

Answer 30

either an operating or investing activity but not as financing

Question 31

Long-lived assets that will be disposed of other than by sale, such as in a spin-off, an exchange for other assets, or abandonment, are classified as

Answer 31

held for use until disposal and continue to be depreciated until that time.

Question 32

Under IFRS the statement of comprehensive income should most appropriately begin with:

Answer 32

the profit or loss from the income statement.

Question 33

Debt payment ratio

Answer 33

Cash flow from operations/Cash paid for long-term debt repayment

Question 34

Treasury stock is

Answer 34

non-voting and does not receive dividends.

Question 35

Under IFRS, the carrying amount is compared with

Answer 35

Recoverable amount = higher of: * fair value minus costs to sell * present value of expected future cash flows

Question 36

The cash from operations is lower if the lease is classified as

Answer 36

operating lease

Question 37

Tax burden ratio

Answer 37

Net income/Earnings before tax

Question 38

Cash flow debt coverage ratio

Answer 38

CFO/Total debt

Question 39

A stock split is treated as

Answer 39

* if it occurred at the beginning of the year * считаем среднее количество, будто ничего не было и вконце умножаем на 2

Question 40

Basic EPS ? Diluted EPS

Answer 40

* Basic \> Diluted * Diluted EPS **must** **be less** than basic EPS. * * Otherwise Diluted EPS=Basic EPS

Question 41

Software development is allowed by which standard?

Answer 41

US GAAP

Question 42

Capitalization of development costs - ?

Answer 42

IFRS allows development costs to be capitalized if certain criteria are met;

Question 43

Adjust LIFO method to compare with FIFO method

Answer 43

Current inventory **+** LIFO Reserve

Question 44

Interest expense =

Answer 44

* Liability value × Market rate at issuance * LiablityValue = e.g. Issue price of bond

Question 45

Interest burden

Answer 45

EBT/EBIT

Question 46

The proxy statement provides information about

Answer 46

management and board member compensation, as well as any conflicts of interest.

Question 47

Deferred tax assets result from

Answer 47

* gains that are taxable before they are recognized in the income statement * losses that are recognized in the income statement before they are tax deductible

Question 48

deferred tax liabilities result from

Answer 48

* gains that are recognized in the income statement before they are taxable * losses that are tax deductible before they are recognized in the income statement.

Question 49

Investing cash flows most likely reflect changes in

Answer 49

Noncurrent assets.

Question 50

Basic EPS

Answer 50

* (Net income - preferred dividends)/(WA# of common sharesoutstanding) * * DON'T use tax shield for **preferred dividends**

Question 51

A finance lease

Answer 51

* add debt to the balance sheet =\> higher debt-to-capital ratio * higher interest expense (compared to operating)=\> lower interest coverage ratio * net income will be lower in the early years (compared to operating lease)

Question 52

Cash return on assets

Answer 52

Cash flow from operations/Avg. Total Assets

Question 53

Earthquake (under GAAP)

Answer 53

as an extraordinary item net of taxes if it reports under US GAAP.