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Corporate Finance Harvard > Introduction > Flashcards

Introduction Flashcards

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1
Q

Financial Statement- definition

A

Financial statements are written records that convey the business activities and the financial performance of a company.

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2
Q

Financial statement - users and usages

A

users: governement, agencies, firms, accoutnants
usage: ensure accuracy, investing purposes

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3
Q

What are the different financial statements?

A

Balance sheet
Income Statement
Cash Flow Statement

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4
Q

What is the main advantage of financial investment?

A

unbiquitous and convenient because they are quantitative.
- common form accros different types of business
Express everything in common unites
- provide a systematic way of linking the past, present and expected future performance

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5
Q

Financial ratios

A
  • Financial ratios consist of a simple comparison between items of interest from a balance sheet and/or income statement that yield insight into condition or performance.
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6
Q

Financial ratios - use

A
  • They give some knowledge about the recent performance and current financial condition of the firm  Financial health
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7
Q

What are the 6 financial ratios categories?

A
  1. Growth
  2. Profitability
  3. Liquidity
  4. Leverage
  5. Efficiency
  6. Risk
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8
Q

Why managers and investors are looking at growth?

A
  • Managers and investors are interesting about producing more cash – their company to become more valuable.
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9
Q

What are the ways to mesure growth rate of a specific item?

A

Company’s year to year growth rates

Coumpound average growth rate (CAGR)

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10
Q

What is the formula for Company’s year to year growth rate?

A

One year Growth Rate=

Sales n+1 - Sales n / Sales n

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11
Q

What is the formula for CAGR?

A

Year CAGR=

(Sales n+t/ Sales n)^ (1/t) -1

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12
Q

The growth rate is used to mesure the growth of which items? (where can we find these items)

A

Sales & Operating profit

We can find them on the income statement

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13
Q

What is an operating profit?

A
  • Operating profit/ benefice d’exploitation = earnings before interest and taxes (EBIT)
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14
Q

What Managers and investors are looking at profitability

A

In addition to knowing whether a company is growing, we want to know if it is profitable.
Indeed having a look at gross profit, operating profit and net income is not enough.
We need to compare the profits to something: how much sales were required to generate a given profit?

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15
Q

What are the different profitability ratios?

A
  • Profit Margin

- Return on Equity

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16
Q

What is a profit margin ?

A

Profit margin is one of the commonly used profitability ratios to gauge the degree to which a company or a business activity makes money. It represents what percentage of sales has turned into profits

17
Q

What are the different formulas of profit margin?

A

Gross margin
Operating margin
Net margin

18
Q

What is a gross margin?

A

How profitable firm operations are without taking into account administration and overhead cost

19
Q

What is the formula of gross margin?

A

Gross margin = gross profit/ sales

20
Q

What is a operating margin

A

How profitable the company is before taking into account its interest expense

21
Q

What is the formula of operating margin?

A

Operating profit/ Sales

22
Q

What is a net margin?

A

Measure profitability after everything is taking into account: production cost, overhead cost, interest expense and taxes.

23
Q

What is the formula of a net margin?

A

Net margin = Net income/ Sales

24
Q

Regarding the profit margin: Why we are not systematically only looking at the net margin? Is it not the most comprehensive and most informative one?

A

Not necessarily: by looking at the different margins, we can know more about the different reasons for good or bad performance. If net margin has decline in a given year, doesn’t tell us why. Due to higher production cost? Overhead?

25
Q

What is the return on equity ?

A

Part of the profitability ratio
ROE is considered the return on net assets. ROE is considered a measure of how effectively management is using a company’s assets to create profits.

26
Q

What is the return on beginning equity? (ROBE)

A

The return on beginning equity (ROBE) compares net income during a given year to owner’s equity at the beginning of the year.

27
Q

What is the formula of the ROBE?

A

ROBE= Net income/ Equity

Corporate Finance Harvard (1 decks)

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