Lesson 0-3

Question 1

investment and financing are two sides of the same coin, where risk
is an essential analysis parameter

Answer 1

True

Question 2

How do you calculate net present value

Answer 2

You divide the cashflow with one plus the given interest rate exponentiated by the time untill you recive the payment. $/(1+i)^t

Question 3

What question shall be answered in The Statement of Financial Position

Answer 3

What are the firm’s assets and how are they funded?

Question 4

The statement of financial position is an average value of accounts over a period of time

Answer 4

No, it is an accountant’s snapshot of a firm’s accounting value on a particular date

Question 5

In the statement of financial position you find a list of a companies assets and if they are financed through debt or equity

Answer 5

yes and no, this is the financial statement so you will see what assets there are and what liabilities there are but you will not see what share of the company car is financed through debt

Question 6

How is net working capital (NWC) calculated

Answer 6

Current assets - current liabilities (current means things with fast turnover)

Question 7

The income statement mesures performance at a specific point in time

Answer 7

No, average over a period

Question 8

How is net income calculated

Answer 8

Revenue - Expenses

Question 9

Name some operating expenses

Answer 9

COGS (cost of good sold aka costs incurred by the main operations of the business f.ex material labor and depreciation of property plant and equipment) also R&D is included under operating expenses

Question 10

How is ebit calculated

Answer 10

Operating income is revenuses - operating expenses

Question 11

What is marginal tax rate

Answer 11

the tax rate you pay if you earn one more unit of
currency

Question 12

How is average tax rate calculated

Answer 12

it is the proportion of the taxable income that goes to pay
taxes so; taxes payed / profits before tax

Question 13

If the tax rate is 20% for taxable income up to €200,000 and then 30% does a firm that earns more have to pay 30% on all they earn

Answer 13

No they pay 20% on 200k and 30% on the rest. The average tax rate becomes the total tax payed divided by total earnings while marginal tax rate is the tax rate on additional income so 30%.

Question 14

What are the three parts of the cashflow statement

Answer 14

Cashflow from operating, investing and financing activities all added together become net cashflow

Question 15

When evaluating companies financial statement it is important to compare to companies of simmilar size and industry, like for like

Answer 15

true

Question 16

What is characteristic of margins in financial ratios

Answer 16

They are all generally divided by revenue

Question 17

What is gross profit margin aka gross margins

Answer 17

(Revenue - COGS) / Revenues

Question 18

what are operating profit margins aka operating margins

Answer 18

EBIT / Revenue

Question 19

What are profit margins

Answer 19

Net profit/revenue

Question 20

What is meant by the phrase it is important to compare like for like

Answer 20

To not look at absolute values but rather ratios, what investment would pay off more handsomly

Question 21

What does short term solvency or liquidity ratios tell us about a company

Answer 21

A firms imediate ability to pay without undo stress

Question 22

What does Long-term solvency or financial leverage ratios tell us about a company

Answer 22

The firms long run ability to pay its obligations

Question 23

What does asset management or turnover ratios tell us about a company

Answer 23

How efficiently or intensively a company uses its assets to generate sales

Question 24

What are the five categores of financial ratios

Answer 24

Market ratios, profitability ratios, longterm & short term solvency ratios and asset tunrover ratios

Question 25

Name three short term liquidity ratios

Answer 25

current ratio = (current assets/ current liabilities), quick ratio = (c assets - inventory)/c liabilities and cash ratio = cash & cash equivalents / c liabilities

Question 26

Name five long term leverage ratios

Answer 26

total debt ratio, debt/equity ratio, equity multiplyer = assets/equity, interest coverage or interest earned ratio = EBIT/Interest and cash coverage ratio = EBIT+Depreciation / interest

Question 27

Name five asset management mesures

Answer 27

inventory turnover = COGS/Inventory, recivable turnover = revenues / number of trade receivables, payable turnover = Cogs/ trade payables, asset turnover = revenue/ total assets & days sale in recivables = average recivables of a day durring the year

Question 28

Name five profitability metrics

Answer 28

profit margin = net income/ revenue, return on assets = net income / total assets and return on equity = net income / equity

Question 29

How are ROA, ROE, equity multiplier and debt to equity ratio related to eachother

Answer 29

ROE=ROAEqMul=ROA(1+Debt to equity)

Question 30

Explain the dupont model

Answer 30

ROE = profit margin * asset turnover * Equity multiplier. Aka “ROE is affected by, Operating efficiency (as measured by profit margin), Asset use efficiency (as measured by asset turnover), Financial leverage (as measured by equity multiplier)”

Question 31

What is OROA

Answer 31

Operating return on assets, EBIT/Total assets, Must be higher than interest rate or assets poorly positioned

Question 32

ROE = 1 − 𝑡𝑎𝑥 𝑟𝑎𝑡𝑒 [𝑂𝑅𝑂𝐴 + (𝑂𝑅𝑂𝐴 − 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒) × D𝑒𝑏𝑡/Equity]

Answer 32

True

Question 33

OROA is unafected by capital structures aka level of leverage

Answer 33

True

Question 34

ROA = Profit margin × Asset turnover

Answer 34

True

Question 35

Name some Market financial ratios

Answer 35

P/E price/earnings, EPS earnings per share, market to book ratio mv/bv

Question 36

Name two benchmarks to compare the financial ratios of a company

Answer 36

pear group analysis or time trend analysis

Question 37

Fiancial flows like bank loans have decreesed as a percentage of GDP from the mid 2000

Answer 37

Yes although I belive this is in the case of sweden

Question 38

Bank loans stand for a minority of external financing in most countries

Answer 38

Yes although in italy it is close to 50% but that is an outlier. It is usually 10-25%

Question 39

What is the differece between issuing bonds and taking a bank loan

Answer 39

Bonds are sold to the public while bank loans are loaned from a private bank, payments to a bank are done in the form of an annuity while in the case of a bond it is most often just once at the end of the life of the bonds life

Question 40

What is a zero coupon bond

Answer 40

A bond that pays no periodical interest but only a grand principle payment

Question 41

What is the face value or par value of a bond

Answer 41

The nominal value payed at the end of life.

Question 42

What are the three common types of bonds payments

Answer 42

Pure discount bonds; aka no coupon, Fixed rate; aka coupons & principle and Console bonds; aka only coupons

Question 43

How do you calculate the present value of a console bond

Answer 43

Coupon payment / interest rate

Question 44

What is the yield to maturity rate YTM

Answer 44

The discount/interest rate that would make the present value of a bond equal to its price

Question 45

How does the yield curve normally look

Answer 45

it becomes higher for bonds further into the future since those are more uncertain and demand higher interest rates

Question 46

What are discount and premium bonds

Answer 46

discounts are sold below their present value and premium bonds are sold above

Question 47

YTM is larger than coupons in premium bonds

Answer 47

False, that is the case for discount bonds, for premium it is the oposite

Question 48

For premium bonds the price is usually higher than the face value

Answer 48

True, usually becouse the coupons are higher than the market interest rate

Question 49

What is accrued interest

Answer 49

Coupon payment * time since last coupon / time between coupons

Question 50

Why is the quoted price usually lower than the price you pay if you buy a bond between coupon payment

Answer 50

becouse the quoted price aka the ckean price does not count in accrued interest as per convention so what you must pay is the dirty price

Question 51

Why is the quoted price used by bond traders to denominate bond price instead of the real one

Answer 51

Becouse the price fluctuations due to accrued interest is predictable but adds complexity, to highlight price changes due to unpredictable factors like risk they remove the accrued interest from the equation.