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ULL MBA 512 > Module 2 > Flashcards

Module 2 Flashcards

After studying this chapter, you should be able to: 1. Tell how to standardize financial statements for comparison purposes 2. Calculate and interpret some common ratios 3. Analyze the determinants of a firm’s profitability. Identify some of the problems and pitfalls in financial statement analysis.

1
Q

Sources of Cash

A

Activities that bring in cash (i.e. selling product, an asset, or a security)

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2
Q

Uses of Cash

A

Activities that involve spending cash (i.e. paying for materials and labor to produce a product and in purchasing assets; payments to creditors and owners)

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3
Q

Common-Size Balance Sheets

A

Express each item as a percentage of total assets

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4
Q

Common-Size Income Statements

A

Express each item as a percentage of total sales

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5
Q

What are the five groups of Financial Ratios?

A
  1. Short-term solvency or liquidity
  2. Long-term solvency or financial leverage
  3. Asset Management or turnover
  4. Profitability
  5. Market Value
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6
Q

What are the Short-term Solvency or Liquidity Ratios?

A 
Current Ratio
Quick Ratio (Acid Test)
Cash Ratio
Net Working Capital to Total Assets
Interval Measure
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7
Q

Current Ratio

A

= Current Assets / Current Liabilities

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8
Q

Quick Ratio (Acid Test)

A

= Current Assets - Inventory / Current Liabilities

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9
Q

Cash Ratio

A

= Cash / Current Liabilities

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10
Q

Net Working Capital to Total Assets

A

= Net Working Capital / Total Assets

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11
Q

Interval Measure

A

= Current Assets / Average Daily Operating Costs

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12
Q

What are the Long-term Solvency or Financial Leverage Ratios?

A 
Total Debt Ratio
Debt-Equity Ratio
Equity Multiplier
Long-term Debt Ratio
Times Interest Earned Ratio
Cash Coverage Ratio
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13
Q

Total Debt Ratio

A

= Total Assets - Total Equity / Total Assets

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14
Q

Debt-Equity Ratio

A

= Total Debt / Total Equity

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15
Q

Equity Mulitplier

A

= Total Assets / Total Equity

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16
Q

Long-term Debt Ratio

A

= Long-term Debt / Long-term Debt + Total Equity

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17
Q

Times Interest Earned Ratio

A

= EBIT / Interest

18
Q

Cash Coverage Ratio

A

= EBIT + Depreciation / Interest

19
Q

What are the Asset Management or Turnover Ratios?

A 
Inventory Turnover 
Days' Sales in Inventory
Receivables Turnover
Days' Sales In Inventory
NWC Turnover
Fixed Asset Turnover
Total Asset Turnover
20
Q

Inventory Turnover

A

= CoGS / Inventory

21
Q

Days’ Sales in Inventory

A

= 365 Days / Inventory Turnover

22
Q

NWC Turnover

A

= Sales / NWC

23
Q

Fixed Asset Turnover

A

= Sales / Net Fixed Assets

24
Q

Total Asset Turnover

A

= Sales / Total Assets
Also
= ROA / Profit Margin

25
Q

What are the Profitability Ratios?

A

Profit Margin
Return on Assets
Return on Equity

26
Q

Profit Margin

A

= Net Income / Sales

27
Q

Return on Assets

A

= Net Income / Total Assets
Also
= Profit Margin * Asset Turnover Ratio

28
Q

Return on Equity

A

= Net Income / Total Equity

29
Q

What are the Market Value Ratios?

A

Price-Earnings Ratio
Price-Sales Ratio
Market -to-Book Ratio
Enterprise Value-EBITDA Ratio

30
Q

Price-Earnings Ratio

A

= Price per Share / Earnings per Share

31
Q

Price-Sales Ratio

A

= Price per Share / Sales per Share

32
Q

Market-to-Book Ratio

A

= Market Value per Share / Book Value per Share

33
Q

Enterprise Value-EBITDA Ratio

A

= Total Market Value of the Stock + Book Value of all Liabilities - Cash

34
Q

EBITDA Ratio

A

= Enterprise Value / EBITDA

35
Q

The DuPont Identity

A

Breaks ROE into three parts:
Operating Efficiency
Asset Use Efficiency
Financial Leverage

36
Q

DuPont Identity Equation

A

= (Net Income Sales / Sales) * (Sales / Assets) * (Assets / Total Equity)
Also
= Profit Margin * Total Asset Turnover * Equity Multiplier

37
Q

What are internal uses of Financial Statement Information?

A

Performance Evaluation, Multiple Division firms compare the performance of those divisions, planning for the future

38
Q

What are external uses of Financial Statement Information?

A

Evaluation of suppliers, evaluation of competitors, acquisition of another firm, evaluation of outside parties

39
Q

What are the two ways in choosing a Benchmark?

A

Time Trend Analysis & Peer Group Analysis

40
Q

What are Standard Industrial Classification (SIC) Codes?

A

Four-digit codes established by the US government for statistical reporting

ULL MBA 512 (3 decks)

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