FRA Flashcards
(30 cards)
What is the formula for RoE?
Profit / equity
Higher is better
What is formula for ROCE?
Profit before interest and tax (PBIT) / Capital employed (total assets - total current liabilities)
(Solely measures revenue generated by operations, EBIT includes additional income)
- overall performance of the entity
Higher is better
Net profit margin ratio formula
PBIT / Revenue
Higher is better
Gross profit formula
Gross profit / revenue
Higher is better
Asset turnover formula
Revenue / Capital employed
Higher better
Non-current asset turnover formula
Revenue / Non-current assets
Higher
Inventory turnover formula
Closing inventory * 365 / cost of sales
Higher better
Trade receivables ratio formula
Trade receivable * 365 / revenue
Higher better
Trade payables formula
Trade payables * 365 / credit purchases
higher better
What is the cash cycle + formula?
Accounts receivable days + inventory days - accounts payable days = cash cycle
- measures the numbers of days it takes to acquire and sell invent ory and convert this into cash
Current ratio formula
Current assets / Current liablities
- companies that generate cash can often operate with it under 1
Quick ratio formula
Current assets - inventory / current liabilities
Interest cover formula
EBIT / interest expense
Depends on industry - regulated low would be find, in volatile industries, high is preferred
Gearing ratio formula
Total debt / shareholder equity
High > 50% | 25-50% usually optimal | <25% Low
What does IAS 32 Debt and equity imply?
Debt - liability: obligation, outflow, reliably measured
Equity - no obligation -> residual interest
What does IAS 32 compound instruments mean?
Fair value - amount that an asset can be exchanged for
Total FV - LiabilityFV = residual equity FV
What is convertible debt?
Debt that appears as both equity and debt - split presentation into libaility and equity amounts
What is the IAS 37 provision criteria?
- Present obligation from past event
- Probable outflow of economic benefits
- Method to evaluate timing and amount
= all 3 = provision
What are the two types of obligation?
Contractual and Legal
What to do with expected values?
When there is a large number of items, use weight them (% * number)
What is an onerous contract?
When the unavoidable costs of meeting obligations under a contract outweighs the benefits of the contract
What is discounting?
When there is time between the settlement of an obligation - record a liability at present value of expenditure required
What does IAS 37 restructuring mean?
Restructuring creates constructive obligation when: detailed plan and expectation from those impacted
What does IAS 36 impairments relate to?
Ensures assets carried at no more than the recoverable amount
