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Corporate Finance > Financial Statement Analysis > Flashcards

Financial Statement Analysis Flashcards

1
Q

How often are US companies required to file their financial statements with the SEC?

A

-Quarterly (Form 10-Q)
-Annually (Form 10-K)
-Companies must also send an annual report to their shareholders every year

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2
Q

What are the main financial statements?

A

-Balance Sheet
-Income Statement
-Cash Flow Statement
-Statement of Stockholders’ Equity
-Management Discussion and Analysis
-Notes to the Financial Statements

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3
Q

What is the purpose of the Management Discussion and Analysis?

A

-Preface to the financial statements
-Provides a background on the company and any significant events
-Records any off-balance sheet transactions

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4
Q

What is the equation for market capitalisation?

A

Market Capitalisation= Shares Outstanding * Market Price Per Share

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5
Q

What is the equation for the market to book ratio?

A

Market to Book Ratio= (Market Value of Equity)/ (Book Value of Equity)

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6
Q

What are firms with low market to book ratios called?

A

Value Stocks

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7
Q

What are firms with high market to book ratios called?

A

Growth Stocks

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8
Q

What is the equation for enterprise value?

A

Enterprise Value = Market Cap + Debt - Cash

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9
Q

What can EV be interpreted as?

A

The cost to take over the business

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10
Q

What are the profitability ratios?

A

-Gross Margin
-Operating Margin
-EBIT Margin
-Net Profit Margin

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11
Q

What is the equation for gross margin?

A

Gross Margin= (Gross Profit)/ (Sales)

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12
Q

What is the equation for operating margin?

A

Operating Margin= (Operating Income)/ (Sales)

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13
Q

What is the equation for EBIT margin?

A

EBIT Margin = EBIT/ Sales

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14
Q

What is the equation for Net Profit Margin?

A

Net Profit Margin= Net Income/ Sales

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15
Q

What are the Liquidity Ratios?

A

-Current Ratio
-Quick Ratio
-Cash Ratio

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16
Q

What is the equation for the Current Ratio?

A

Current Ratio= Current Assets/ Current Liabilities

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17
Q

What is the equation for the Quick Ratio?

A

Quick Ratio= (Cash + Near Cash Assets) (M1)/ Current Liabilities

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18
Q

What is the equation for the Cash Ratio?

A

Cash Ratio= Cash/ Current Liabilities

19
Q

What is the caveat with liquidity ratios?

A

-They only consider the firm’s current assets
-If a firm can generate significant cash quickly from its operations it might be highly liquid even if these ratios are poor

20
Q

What are the Working Capital Ratios?

A

-Accounts Receivable Days
-Accounts Payable Days
-Inventory Days
-Accounts Receivable Turnover
-Accounts Payable Turnover

21
Q

What is the equation for ARD?

A

Accounts Receivable Days= Accounts Receivable/ Average Daily Sales

22
Q

What is the equation for APD?

A

Accounts Payable Days = Accounts Payable/Average Daily COGS

23
Q

What is the equation for Inventory Days?

A

Inventory Days= Inventory/ Average Daily COGS

24
Q

What is the equation for Inventory Turnover?

A

Inventory Turnover= Annual COGS/ Inventory

25
Q

What is the equation for ART?

A

Annual Sales/ Accounts Receivable

26
Q

What is the equation for APT?

A

Annual COGS/ Accounts Payable

27
Q

What are the Interest Coverage Ratios?

A

-EBIT-Interest Coverage Ratio
-EBITDA

28
Q

What is the equation for the EBIT-Interest Coverage Ratio?

A

EBIT-Interest Coverage Ratio= EBIT/Interest

29
Q

How do you calculate EBITDA?

A

EBIDTA= EBIT + Depreciation + Amortisation

30
Q

What are the Leverage Ratios?

A

-Debt: Equity Ratio
-Debt: Capital Ratio
-Net Debt
-Debt:EV Ratio
-Equity Multiplier

31
Q

What is the equation for the Debt-Equity Ratio?

A

Debt-Equity Ratio= Total Debt/ Total Equity

32
Q

What is the equation for the Debt-Capital Ratio?

A

Debt-Capital Ratio= Total Debt/ (Total Equity + Total Debt)

33
Q

What is the equation for Net Debt?

A

Net Debt= Total Debt- Cash and Short Term Investments

34
Q

What is the equation for the Debt-EV ratio?

A

Debt-EV Ratio= Net Debt/ (Market Cap + Net Debt)= Net Debt/ EV

35
Q

What is the Equity Multiplier?

A

Equity Multiplier= Total Assets/ Market Cap

36
Q

What is the main valuation ratio?

A

-P/E Ratio

37
Q

What is the equation for the P/E Ratio?

A

-P/E Ratio= Market Cap/ Net Income = Share Price/ Earnings per Share
-The value of a stock should be proportional to the level of earnings it can generate
-Ceteris Paribus riskier firms have lower P/E
-P/E ratios consider the firm’s equity so they are sensitive to leverage

38
Q

What are the Operating Returns Ratios?

A

-Return on Equity (ROE)
-Return on Assets (ROA)
-Return on Invested Capital

39
Q

What is the equation for ROE?

A

ROE= Net Income/ Market Cap

40
Q

What is the equation for ROA?

A

ROA= (Net Income + Interest Expense)/ Book Value of Assets

41
Q

What is the equation for Return on Invested Capital?

A

Return on Invested Capital= EBIT(1-t)/ (Market Cap+ Net Debt) = EBIT(1-t)/ EV

42
Q

What is the DuPont Identity?

A

A formula that allows us to break down the return on equity

43
Q

What is the equation for the DuPont Identity?

A

-ROE= Net Profit Margin* Asset TurnoverEquity Multiplier
-ROE= (Net Income/Sales) (Sales/ TA)*(TA/Market Cap)

Corporate Finance (11 decks)

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