Financial Stmts and Analysis

Question 1

Accelerated vs Straight Line Depreciation

Answer 1

In early years of an asset, Straight Line will result in lower depreciation and thus higher net income than accelerated

Question 2

Straight Line Depreciation

Answer 2

= (cost - residual value) / useful life

Question 3

Double Declining Balance Method

Answer 3

= (2 / Useful Life) (asset cost - accumulated depreciation)

Question 4

When if LIFO best?

Answer 4

in an inflationary environment bc it will decrease the taxable income

-not allowed under the IFRS

Question 5

Potentially dilutive securities

Answer 5

include stock options, warrants, convertible preferred stock

Question 6

Dilutive Securities

Answer 6

Securities that would decrease EPS if exercised and converted into common stock

Question 7

Antidilutive Securities

Answer 7

securities that would increase EPS in converted to common stock

Question 8

Simple Capital Structure

Answer 8

only contains common stock, nonconvertible debt & nonconvertible preferred stock

Question 9

Complex Capital Structure

Answer 9

includes potentially dillutive securities like options, warrants, or convertible securities

Question 10

Basic EPS equation

Answer 10

= (net income - preferred dividends) / Weighted average number of common shares outstanding

Question 11

Determine if a convertible security is dilutive

Answer 11

convertible pfd dividends / # shares from created from conversion

Question 12

Treasury Stock Method explained

Answer 12

hypothetical funds received by the company are used to purchacse shares of own common stock

Question 13

Treasury Stock Method of new Shares =

Answer 13

((avg mkt price - exercise price) / avg mkt price) * #Of shares covered

Question 14

comprehensive income is

Answer 14

A measure that includes all changes to equity other than owner contributions and distributions

Question 15

Classified Balance Sheet

Answer 15

-similar items are grouped together

Question 16

Liquidity Based Balance Sheet Presentation

Answer 16

available for use under the IFRS

Question 17

Held to Maturity Securities

Answer 17

shown on balance sheet at amortized cost, which is the par value plus any discount or premium paid

Question 18

Trading Securities

Answer 18

• held with the intent of profiting in the short term,

- reported at FAIR VALUE on the balance sheet

Question 19

Available-for-sale-Securities

Answer 19

• Debt and equity not expexted to be held to maturity

- Reported at FAIR VALUE on the balance sheet

Question 20

Treasury Stock

Answer 20

stock that has been reacquired by the issuing firm, but not yet retired

Question 21

Current Ratio

Answer 21

Current assets / current liabilities

Question 22

Quick Ratio

Answer 22

(cash +mkt securities + A/R) / current liabilities

Question 23

Cash Ratio

Answer 23

(Cash + mktable securities) / Current Liabilities

Question 24

Financial Leverage Ratio

Answer 24

Total assets / Total Equity

Question 25

Solvency Ratios

Answer 25

measures risk and ability to satify long term obligations, the higher the ratio, the higher the leverage and thus the higher the risk

Question 26

Preferred Cash Flow Method

Answer 26

Direct Method

Question 27

Direct Method

Answer 27

Shows operating income by converting income statement items and adding/subracting changes from balance sheet

Question 28

Indirect Method

Answer 28

Begin with Net Income and add or subtract from there

Question 29

Investing Cash Flows (CFI)

Answer 29

= Proceeds from sale of assets - expendatures on new assets

Question 30

Net CF from Creditors =

Answer 30

= new borrowings - principal repaid

Question 31

Free Cash Flow

Answer 31

measure of cash that is available for discretionary purposes after obligations have been covered

Question 32

Common-size format

Answer 32

a CF statement that expresses each line item as a percentage of cash flow

Question 33

Free Cash Flow to Firm (FCFF) from NI

Answer 33

= Net Income + non-cash charges + [interest expense x (1- tax)] - net capital investment - working capital investment

Question 34

Free Cash Flow to Equity (FCFE)

Answer 34

= CFO- net CAPEX + net borrowings

Question 35

Cash Return on Assets

Answer 35

CFO / Average Total Assets

Question 36

Debt Coverage Ratio

Answer 36

CFO/ Total Debt

Question 37

Interest Coverage

Answer 37

= (CFO + interest paid + taxes Paid)/ Interest Paid

Question 38

Liquidity Measures

Answer 38

Current Ratio and Quick Ratio

Question 39

Receivables Turnover

Answer 39

Annual Sales/ Average Receivables

Question 40

Inventory Turnover

Answer 40

COGS/ Average Inventory

Question 41

Payables Turnover Ratio

Answer 41

Purchases/ Average Trade Payables

Question 42

Days of Sales outstanding

Answer 42

365/ Receivables Turnover

Question 43

Days of invenory on hand

Answer 43

365 / inventory turnover

Question 44

Number of days Payable

Answer 44

365 / Payable Turnover ratio

Question 45

Cash Conversion Cycle Equatino

Answer 45

= Days of sales outstanding + inventory days on hand - number of days payable

Question 46

Total Asset Turnover

Answer 46

revenue / avg total assets

Question 47

Fixed asset Turnover

Answer 47

revenue / average net fixed assets

Question 48

Working Capital Turnover

Answer 48

revenue / avg working capital

Question 49

Measures of operating performance

Answer 49

Total asset turnover, fixed asset turnover, working capital turnover. Essentially just take revenue over whatever type you are trying to solve

Question 50

Costs included in Inventory on B.S

Answer 50

Purchase cost, converstion cost, allocation of fixed production overhead, other costs to bring inventory to current location

Question 51

IFRS Inventory

Answer 51

LIFO is not allowed

Question 52

GAAP Inventory

Answer 52

valued at the lower of cost or market value

Question 53

Periodic Inventory System

Answer 53

inventory values and COGS are determined at the end of the accounting perido

Question 54

Inventory Turnover and Inventory

Answer 54

Inventory Turnover is higher for LIFO than FIFO

Question 55

Capitalization and net income

Answer 55

capitalizing expenses decreases expenses

Question 56

Capitalizatin of expenses vs capitalization of leases

Answer 56

Expenses: creates an asset LEases: asset and liability are created

Question 57

Income Tax Expense

Answer 57

noncash income stmt item that includes cash tax expense plus any increase in in deferred tax libility

Question 58

Most common reason for deferred tax liability

Answer 58

depreciation expense on the I.S. is less than depreciation on the tax return