Financial Stmts and Analysis Flashcards
Accelerated vs Straight Line Depreciation
In early years of an asset, Straight Line will result in lower depreciation and thus higher net income than accelerated
Straight Line Depreciation
= (cost - residual value) / useful life
Double Declining Balance Method
= (2 / Useful Life) (asset cost - accumulated depreciation)
When if LIFO best?
in an inflationary environment bc it will decrease the taxable income
-not allowed under the IFRS
Potentially dilutive securities
include stock options, warrants, convertible preferred stock
Dilutive Securities
Securities that would decrease EPS if exercised and converted into common stock
Antidilutive Securities
securities that would increase EPS in converted to common stock
Simple Capital Structure
only contains common stock, nonconvertible debt & nonconvertible preferred stock
Complex Capital Structure
includes potentially dillutive securities like options, warrants, or convertible securities
Basic EPS equation
= (net income - preferred dividends) / Weighted average number of common shares outstanding
Determine if a convertible security is dilutive
convertible pfd dividends / # shares from created from conversion
Treasury Stock Method explained
hypothetical funds received by the company are used to purchacse shares of own common stock
Treasury Stock Method of new Shares =
((avg mkt price - exercise price) / avg mkt price) * #Of shares covered
comprehensive income is
A measure that includes all changes to equity other than owner contributions and distributions
Classified Balance Sheet
-similar items are grouped together
Liquidity Based Balance Sheet Presentation
available for use under the IFRS
Held to Maturity Securities
shown on balance sheet at amortized cost, which is the par value plus any discount or premium paid
Trading Securities
- held with the intent of profiting in the short term,
- reported at FAIR VALUE on the balance sheet
Available-for-sale-Securities
- Debt and equity not expexted to be held to maturity
- Reported at FAIR VALUE on the balance sheet
Treasury Stock
stock that has been reacquired by the issuing firm, but not yet retired
Current Ratio
Current assets / current liabilities
Quick Ratio
(cash +mkt securities + A/R) / current liabilities
Cash Ratio
(Cash + mktable securities) / Current Liabilities
Financial Leverage Ratio
Total assets / Total Equity
Solvency Ratios
measures risk and ability to satify long term obligations, the higher the ratio, the higher the leverage and thus the higher the risk
Preferred Cash Flow Method
Direct Method
Direct Method
Shows operating income by converting income statement items and adding/subracting changes from balance sheet
Indirect Method
Begin with Net Income and add or subtract from there
Investing Cash Flows (CFI)
= Proceeds from sale of assets - expendatures on new assets
Net CF from Creditors =
= new borrowings - principal repaid
Free Cash Flow
measure of cash that is available for discretionary purposes after obligations have been covered
Common-size format
a CF statement that expresses each line item as a percentage of cash flow
Free Cash Flow to Firm (FCFF) from NI
= Net Income + non-cash charges + [interest expense x (1- tax)] - net capital investment - working capital investment
Free Cash Flow to Equity (FCFE)
= CFO- net CAPEX + net borrowings
Cash Return on Assets
CFO / Average Total Assets
Debt Coverage Ratio
CFO/ Total Debt
Interest Coverage
= (CFO + interest paid + taxes Paid)/ Interest Paid
Liquidity Measures
Current Ratio and Quick Ratio
Receivables Turnover
Annual Sales/ Average Receivables
Inventory Turnover
COGS/ Average Inventory
Payables Turnover Ratio
Purchases/ Average Trade Payables
Days of Sales outstanding
365/ Receivables Turnover
Days of invenory on hand
365 / inventory turnover
Number of days Payable
365 / Payable Turnover ratio
Cash Conversion Cycle Equatino
= Days of sales outstanding + inventory days on hand - number of days payable
Total Asset Turnover
revenue / avg total assets
Fixed asset Turnover
revenue / average net fixed assets
Working Capital Turnover
revenue / avg working capital
Measures of operating performance
Total asset turnover, fixed asset turnover, working capital turnover.
Essentially just take revenue over whatever type you are trying to solve
Costs included in Inventory on B.S
Purchase cost, converstion cost, allocation of fixed production overhead, other costs to bring inventory to current location
IFRS Inventory
LIFO is not allowed
GAAP Inventory
valued at the lower of cost or market value
Periodic Inventory System
inventory values and COGS are determined at the end of the accounting perido
Inventory Turnover and Inventory
Inventory Turnover is higher for LIFO than FIFO
Capitalization and net income
capitalizing expenses decreases expenses
Capitalizatin of expenses vs capitalization of leases
Expenses: creates an asset
LEases: asset and liability are created
Income Tax Expense
noncash income stmt item that includes cash tax expense plus any increase in in deferred tax libility
Most common reason for deferred tax liability
depreciation expense on the I.S. is less than depreciation on the tax return
