Quality of earnings Flashcards
what is a tax credit?
a credit that can be used as a deduction against your income
why shouldn’t you trust an auditor?
principle agent problem. They wont be hired unless they give a favourable report often. Dont always report on everything.
Why cant you trust a anaylist
principle agent problem. Ties to investment banks. loss of work if analysis is bad.
difference between 10Q and 10K
q quarterly and k is annually
What would be considered a quality earnings
operation earnings, free from nonrecurring revenues and expenses.
what is the difference between paper transactions and cashflow?
one is created through standard operations the other is from things such as tax credits.
What is an example of declining or increasing expenses that effect earnings?
tax, write downs, ads campaigns, raw materials
What is the two most important things to check for accounts receivables and inventories?
are accounts receivable rising faster than sales and inventory increasing which can lead to write downs?
How do you calculate operating earnings
Revenue - COGS - Selling, admin, general costs - depreciation and amortisation
how to you calculate EBIT
Earnings before interest tax
How to do you calculate Enterprise value
EV = market cap +- for debt or cash
what is deferred income?
Deferred revenue is when you have billed the customer but have not done the work to earn it yet. (liability)
