SFCPA Notes Area I & II Flashcards
(192 cards)
Each item on a particular statement
(like the income statement) is represented as a
percentage of a base figure.
vertical analysis
Compares financial data over time,
showcasing changes in numbers and percentages
Horizontal analysis
Horizontal Analysis Formulas
πΆβππππ π΄πππ’ππ‘ = πΆπ’πππππ‘ ππππππ π΄πππ’ππ‘ β πππππ ππππππ π΄πππ’ππ‘
πππππππ‘πππ πΆβππππ = (πΆβππππ π΄πππ’ππ‘/πππππ ππππππ π΄πππ’ππ‘) * 100%
(New - Old)/Old
What is the Gross Profit margin and what does it measure
Gross Profit/Sales
(Sales - CoGS)/Sales
Measures the percentage of sales that exceed the cost
of goods sold. A decrease might suggest rising costs or
declining sales prices.
What is the net profit margin and what does it measure?
Net Profit/Sales
Shows the percentage of profit for each dollar of sales.
A decrease can indicate operational inefficiencies or
other rising expenses.
What is the return on assets formula and what does it measure?
Net Income/Average Total Assets
Indicates how effectively the companyβs assets
generate earnings.
What is the return on equity formula and what does it measure?
Net Income/Average SE
Measures the profitability of a company in relation to
stockholdersβ equity.
What is the current ratio and explanation of it?
current assets/current liabilities
A measure of a companyβs ability to cover its short-term
liabilities. A ratio under 1 may indicate liquidity
concerns.
What is the quick ratio(acid test ratio)?
(Current Assets - inventory - prepaid assets)/current liabilities
What is the debt to equity ratio and what does it measure?
Total Liabilities/Total Equity
Evaluates a companyβs debt relative to its shareholder
equity. High ratios may suggest that a company is
overleveraged.
What is the times interest earned ratio and what does it measure?
(Net income + interest expense + tax expense)/interest expense
Operating income/interest expense
Measures a companyβs ability to meet its interest
obligations. A lower ratio might indicate greater financial
risk.
What is the inventory turnover ratio?
CoGS/Average inventory
Indicates how many times inventory is sold and
replaced over a period. A low turnover rate may
indicate slow sales or excess inventory.
What is the receivable turnover ratio?
Net Credit Sales/Average Accounts Receivable
Measures how quickly customers are paying their bills.
A lower turnover can indicate collection problems or a
lax credit policy.
What is the asset turnover formula?
Sales/Average Total Assets
Indicates how efficiently a companyβs assets are used
to generate sales.
Descriptive Analysis
Diagnostic Analysis
Predictive Analysis
Prescriptive Analysis
What happened?
Why did it happen?
What will happen in the future?
What should be do based on what we think will happen in the future?
Helps assess an entityβs operational
performance without the effects of financing decisions,
tax environments, or the aging of assets.
EBITDA
Earnings adjusted for specific items
like restructuring costs, impairment charges, or other
non-recurring items.
Adjusted Earnings
free cash flow
Operating cash flow minus capital
expenditures, providing a view on the cash generated
thatβs available for debt repayment, dividends, or
reinvestment.
Earnings derived from the companyβs
primary business activities, excluding side activities or
extraordinary items.
Core earnings
the practice of comparing business processes
and performance metrics to industry bests and/or best practices
from other industries. Itβs about understanding and evaluating the
current position of an entity in comparison to others.
benchmarking
a strategic performance
management tool that provides a balanced view of an
organization by looking beyond traditional financial measures
balanced scorecard
four perspectives of the balanced scorecard
financial
customer
internal process
learning and growth
Key Metrics: Revenue growth, profit margins, return on
investment, economic value added, etc.
financial perspective
Key Metrics: Customer satisfaction scores, customer
retention rates, net promoter score, market share, etc.
customer perspective