Financial Statement Analysis

Question 1

Common Measures of Profitability

Answer 1

Question 2

What is meant by “above the line” and “below the line”?

Answer 2

Question 3

Is EBITDA a good proxy for operating cash flow?

Answer 3

Question 4

Examples of non-recurring items?

Answer 4

Legal settlements
Restructuring expenses
Asset impairments / inventory write downs

Question 5

How does the relationship between depreciation and capex shift as companies mature?

Answer 5

Question 6

What is working capital?

Answer 6

Question 7

What is NET Working Capital?

Answer 7

Question 8

Is negative working capital a bad signal about a company’s health?

Answer 8

Question 9

What is the cash conversion cycle?

Answer 9

Question 10

How would you forecast working capital items on the balance sheet?

Answer 10

Question 11

How would you forecast CAPEX and D&A when creating a financial model?

Answer 11

Question 12

How would you forecast PP&E

Answer 12

Using a roll forward schedule:
EOP PP&E = BOP + Capex - depreciation

Question 13

What are Current and Quick ratios?

Answer 13

Question 14

Is it bad if a company has negative retained earnings?

Answer 14

Question 15

What does RoA measure?

Answer 15

Net Income / Average of EOP and BOP Assets.

Measures how efficiently a company is using its assets to generate income.

Question 16

What does RoE measure?

Answer 16

Net Income / EOP and BOP equity book value.

Measures how efficiently a company is using the capital contributed by shareholders to generate income.

Question 17

What is the relationship between RoA and RoE as measured above?

Answer 17

Question 18

Shortcomings in RoA and RoE for comparisons?

Answer 18

Question 19

What is Return on Invested Capital and what does it measure?

Answer 19

Question 20

What are some Ratios for credit analysis?

Answer 20