Other Flashcards
Define financial control
The process by which managers influence other members of the organization to implement the organization ́s strategies
What are the three repetition points for fixed assets?
- Permanent use
- Purchase price less depreciation
- For some cases market value
What are the two repetition points for current assets?
- Realized within short
* Lowest of purchase price, replacement price, and selling price
Which are the three dimensions of financial analysis?
Profitability
Financial position
Liquidity
Name three typical financial analysis situations
Credit analysis
Equity valuation
Strategic planning
Name three pros with EBITDA
- Measures profit and cash flow at the same time
- Is not influenced by the choice of depreciation method
- Better comparability between companies
Name three cons with EBITDA
- In sufficient matching of expenses overestimates the company’s performance
- Does not take into account the capital needed
- Is influenced by whether the assets are owned or rented
Name the three ratios that measure operating profitability
ROA
ROCE
RONA
Name the ratio that measures shareholder profitability
ROE
When do you use opening balances?
When forecasting profitability
When do you use average balances?
When measuring historical profitability
When do you use closing balances?
When measuring liquidity and financial position
What can you use to measure profitability?
Return ratios
Leverage formulas
DuPont formula
Name two ways to improve profitability
Growth (organic or through acquisitions) • New geographic markets • New products and services • New distributions chanels • New customer segments • Market share increase • Acquisition • Change prices
Improve margins • Purchase from low cost suppliers • Consolidate purchases • Invest in equipment • Close unprofitable businesses • Decrease number of products/services • Outsource • Everyday efficiency improvement
Name four areas where you can improve capital efficiency
Non-current assets • Own or rent • Internal efficient use • External cooperation with customers and suppliers • Sharing with competitors
Inventory
• Inventory analysis in segments
• Internal flows
Accounts receivable
• Customers should pay in time
• Control invoicing routines
• Negotiate credit times
Accounts payable
• Control payment routines
• Negotiate credit times
What determines operating risk?
Profit margin
• How stable are sales in the industry and for the company – price * quantity?
• Are costs fixed or variable? – Operating leverage
• How stable are input prices (goods, personnel, rents)?
• Can costs be forwarded to customers?
Turnover of assets
• How stable are sales in the industry and for the company?
• Are assets fixed or flexible?
What determines financial risk?
Financial leverage
Cost of debt
Bankruptcy costs
How can you approximate operating risk?
Potential instability of future ROCE (ROA, RONA)
Simply put, what do liquidity ratios measure?
The ratios measures the company’s short term ability to pay its maturing obligations
Name six ways to solve liquidity problems
Borrow New issue Skip dividends Sell fixed assets Working capital (decrease credit time?) Income statement (increase revenues & decrease costs)
How is capital employed defined?
Total assets less non interest-bearing liabilities, including deferred tax liabilites
How is Cash flow from operating activities defined?
Operating cash flow after interest received, interest and bank charges paid and after income taxes apid
How is EBITDA defined?
Operating profit before financial items, taxes, depreciation, amortization and share incentive plan.
How is Interest cover defined?
Operating profit plus interest income divided by interest expenses and charges.
How is Net interest-bearing debt defined?
Interest-bearing debt excluding front fees minus cash and cash equivalents.
How is Operating capital defined?
Totalt assets less cash and cash equivalents and non interest-bearing liabilities, including deferred tax liabilities.
How is Return on capital employed defined?
Operating profit plus interest income divided by average capital employed.
How is capital employed defined?
Operating profit divided by average operating capital.
Which are the four steps of a fundamental credit analysis?
- Assessing the exposure at default
- Estimating probability of default
- Estimating probability of recovery
- Estimating the expected loss
