Quality of earnings Flashcards

1
Q

what is a tax credit?

A

a credit that can be used as a deduction against your income

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2
Q

why shouldn’t you trust an auditor?

A

principle agent problem. They wont be hired unless they give a favourable report often. Dont always report on everything.

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3
Q

Why cant you trust a anaylist

A

principle agent problem. Ties to investment banks. loss of work if analysis is bad.

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4
Q

difference between 10Q and 10K

A

q quarterly and k is annually

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5
Q

What would be considered a quality earnings

A

operation earnings, free from nonrecurring revenues and expenses.

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6
Q

what is the difference between paper transactions and cashflow?

A

one is created through standard operations the other is from things such as tax credits.

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7
Q

What is an example of declining or increasing expenses that effect earnings?

A

tax, write downs, ads campaigns, raw materials

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8
Q

What is the two most important things to check for accounts receivables and inventories?

A

are accounts receivable rising faster than sales and inventory increasing which can lead to write downs?

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9
Q

How do you calculate operating earnings

A

Revenue - COGS - Selling, admin, general costs - depreciation and amortisation

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10
Q

how to you calculate EBIT

A

Earnings before interest tax

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11
Q

How to do you calculate Enterprise value

A

EV = market cap +- for debt or cash

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12
Q

what is deferred income?

A

Deferred revenue is when you have billed the customer but have not done the work to earn it yet. (liability)

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