Financial Statement Analysis Flashcards
Common Measures of Profitability
What is meant by “above the line” and “below the line”?
Is EBITDA a good proxy for operating cash flow?
Examples of non-recurring items?
Legal settlements
Restructuring expenses
Asset impairments / inventory write downs
How does the relationship between depreciation and capex shift as companies mature?
What is working capital?
What is NET Working Capital?
Is negative working capital a bad signal about a company’s health?
What is the cash conversion cycle?
How would you forecast working capital items on the balance sheet?
How would you forecast CAPEX and D&A when creating a financial model?
How would you forecast PP&E
Using a roll forward schedule:
EOP PP&E = BOP + Capex - depreciation
What are Current and Quick ratios?
Is it bad if a company has negative retained earnings?
What does RoA measure?
Net Income / Average of EOP and BOP Assets.
Measures how efficiently a company is using its assets to generate income.
What does RoE measure?
Net Income / EOP and BOP equity book value.
Measures how efficiently a company is using the capital contributed by shareholders to generate income.
What is the relationship between RoA and RoE as measured above?
Note that both RoA and RoE may see an increase in net income if the debt is used to grow the business, but this effect is more pronouned in RoE because the denominator does not increase
Shortcomings in RoA and RoE for comparisons?
What is Return on Invested Capital and what does it measure?
What are some Ratios for credit analysis?
