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FSA > Reading 39: Financial Analysis Techniques > Flashcards

Reading 39: Financial Analysis Techniques Flashcards

1
Q

Ammortisation is on?

A

Intangible Assets

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2
Q

Retained Earnings = ?

A

Accumulated Profit

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3
Q

Share Capital + Retained Earnings = ?

A

Book Value/Net Assets/Net Worth

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4
Q

Assets = ?

A

Debt + Equity

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5
Q

2 type of ratios?

A

Pure Ratio & Mixed Ratio

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6
Q

What’s a mixed ratio?

A

Mixed Ratio should have B/S in Average terms. Anything with p&l upon b/s is a mixed ratio.

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7
Q

Receivables Turnover = ?

A

Annual Sales / Average Receivables

= Churning of Debtors

If higher = Receivables low; strict credit terms to debtors, lower sales growth

If lower = Receivables high = Bad debts.

CONC: Balanced or a bit higher

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8
Q

Days of sales outstanding = ?

A

365 / Receivables Turnover

= Average collection period

Higher = Bad Debts
Lower = Strict credit term

CONC: Balanced or a bit lower

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9
Q

Inventory Turnover Ratio = ?

A

COGS / Avg Inventory

= Churning of Inventory

Higher = Inventory low; STOCK OUT problem
Lower = Inventory high; Mis-management

CONC: Balanced or a bit higher

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10
Q

Days of inventory on hand = ?

A

365 / Inventory turnover

= Inventory Holding Period

Higher = Mis-management
Lower = Stock out problem

CONC: Balanced

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11
Q

Payables Turnover = ?

A

Purchases / Avg Trade Payable

= Churning of creditors

Higher = Creditors low; 1) Opting cash discount; 2) Lower credibility
Lower = Creditors high = LIQUIDITY problem

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12
Q

Number of Days Payable = ?

A

365 / Payables Turnover Ratio

= Avg Payment Period

Higher = Liquidity problem
Lower = Lower credibility

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13
Q

Asset turnover ratio = ?

A

Revenue / Avg Total Assets

= to judge efficient utilisation of assets.

Higher = Higher efficiency
Lower = Inefficiency

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14
Q

What happens if asset turnover ratio is EXCESSIVELY higher?

A

= lower asset = lower capacity for future growth.

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15
Q

Working Capital Turnover = ?

A

Revenue / Avg Working Capital

= Utilisation of working capital

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15
Q

Current Ratio = ?

A

Current Assets / Current Liabilities

Higher = CA high = mismanagement
Lower = CL high = liquidity problem

CONC: Balanced or a bit higher

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16
Q

Quick Ratio = ?

A

Cash + Marketable Securities + Receivables / Current Liabilities

CONC: Balanced or a bit higher

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17
Q

Other name for Quick Ratio?

A

Asset Test Ratio

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18
Q

Cash Ratio = ?

A

Current Liabilities

CONC: Balanced or a bit higher

19
Q

Defensive Interval Ratio = ?

A

Cash + Marketable Securities + Receivables
/
Avg Daily Expenditure

= to find no. of days of average cash expenditure firm could pay by its current liquid assets or quick assets.

Higher = Mismanagement
Lower = Liquidity problem

20
Q

Cash conversion cycle = ?

A

(Days of Sales Outstanding + Days of Inventories on hand) - No. of days payables

() = Operating Cycle

CONC: Lower is better because it means churning is faster.

21
Q

What is over equity capitalisation?

A

Using excessive equity capital is known as over equity capitalisation.

22
Q

Debt-to-equity ratio = ?

A

Total debt /
Total shareholder’s fund

Here, denominator = share cap. , reserves & surplus.
Higher = Debt more; more risk
Lower = Equity more; over equity cap.

CONC: Balanced or a bit lower

23
Q

Explain the following:
Debt to equity ratio is 2.
What is the weight of Debt?

A

Debt /
Debt + Equity
2
——— = 2/3 = 66.67%
2 + 3

66.67% = wt. of debt
33.33% = wt. of equity

24
Q

Debt-to-Capital Ratio = ?

A

Total debt / Total debt + Total Shareholder’s fund = wt. of debt

25
Q

Debt -to-assets Ratio = ?

A

Total Debt / Total Assets
= what part of assets are funded by debt.

CONC: Balanced or a bit lower

26
Q

Debt-to-Assets Ratio is also known as?

A

DEBT RATIO

27
Q

Financial Leverage = ?

A

Total Assets / Total Equity

Higher = Higher debt
Lower = Lower debt

CONC: Balanced or a bit lower

28
Q

Another formula for financial leverage?

A

(1+D/E)

29
Q

Financial Leverage is 1.5, what does this mean?

A

=1 then - NO debt
>1 then - debt
So, 1.5 :- 1 (equity) + 0.5 (debt)

30
Q

Interest Coverage Ratio = ?

A

EBIT / Interest payments
= profit available to pay interest

CONC: Higher is better

31
Q

Fixed Charge Coverage = ?

A

EBIT + Lease payments / Interest payments + Lease payments

CONC: Higher is better

32
Q

Debt-to-EBITDA Ratio

A

Total debt / EBITDA

CONC: Lower is better

33
Q

Profitability ratios are GENERALLY good when?

A

When they are higher

34
Q

Net Profit Margin = ?

A

Net Income / Revenue

35
Q

Gross Profit Margin = ?

A

Gross profit / Revenue

36
Q

Operating Profit Margin = ?

A

Operating income / Revenue
= EBIT / Revenue

37
Q

Pretax margin = ?

A

EBT / Revenue

38
Q

Return on Assets (ROA) = ?

A

Net Income / Avg Total Assets
= measure of efficiency w.r.t profit
= how much lesser asset is used to generate profit

AFTER TAX= NI + (1+t) / Avg Total Assets

PRETAX = EBIT / Avg Total Assets

39
Q

Return on Invested Capital (ROIC) = ?

A

EBIT / Avg Total Capital

40
Q

Return on Equity (ROE) = ?

A

Net Income / Avg total equity

i) ROE on common stock =
NI - Preferred dividends / Avg common equity

41
Q

ROE 3 aspect ratio = ?

A

{(N.I/Sales) x (Sales/TA)} x (TA/Equity) = NI/Equity.

= ROA x (1+D/E)

42
Q

ROE 5 aspect ratio = ?

A

(N.I/Sales) x (Sales/TA) x (TA/Equity)
= {(EBIT/Sales) x (EBT/EBIT) x (NI/EBT)} x Sales/TA x TA/Equity
= {Operating profit margin X Interest effect X Tax effect} X (Sales/TA) X (TA/Equity)

43
Q

Tax Effect = ?

A

NI/EBT
= EBT - Tax Exp/EBT
=EBT/EBT - Tax Exp/EBT
= 1-Tax Rate
= (1-t)

44
Q

Interest Effect = ?

A

EBT/EBIT
= (EBIT - I) / EBIT
= EBIT/EBIT - I/EBIT
= 1- I/EBIT
= 1 - (1 / Interest Coverage Ratio)
because = Interest cvg ratio = EBIT/Interest payment or I.

FSA (2 decks)

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