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CMA Exam Part 2 > SU7: Ratio Analysis > Flashcards

SU7: Ratio Analysis Flashcards

1
Q

Net Working Capital

A

Current Assets - Current Liabilities

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2
Q

Current Ratio

A

Current Assets / Current Liabilities

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3
Q

Quick (Acid Test) Ratio

A

(Cash + Marketable Securities + Net Receivables) / Current Liabilities

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4
Q

Cash Ratio

A

(Cash + Marketable Securities) / Current Liabilities

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5
Q

Cash Flow Ratio

A

Cash flow from operations / Current Liabilities

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6
Q

Net Working Capital Ratio

A

(Current Assets - Current Liabilities) / Total Assets

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7
Q

Gross Profit Margin

A

(Net Sales - COGS) / Net Sales

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8
Q

Operating Profit Margin

A

Operating Income / Net Sales

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9
Q

Net Profit Margin Ratio

A

Net Income / Net Sales

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10
Q

EBITDA Margin

A

EBITDA / Average Total Assets

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11
Q

Return on Assets (ROA)

A

Net Income / Average Total Assets

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12
Q

Return on Equity (ROE)

A

Net Income / Average Total Equity

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13
Q

Relationship between ROA and ROE

A

ROA = ROE x (1 - Debt Ratio)

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14
Q

Dupont Model Equity- components

A

Net Profit Margin x Assets Turnover x Equity Multiplier

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15
Q

Assets Turnover

A

Net Sales / Average Total Assets

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16
Q

Equity Multiplier

A

Average Total Assets / Average Total Equity

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17
Q

Dupont Model Assets

A

ROA = Net Proft Margin x Total Asset Turnover

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18
Q

A change in accounting principle occurs when an entity

A

(1) adopts a generally accepted principle different from the one previously used, (2) changes the method of applying a generally accepted principle, or (3) changes to a generally accepted principle when the principle previously used is no longer generally accepted

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19
Q

A change in accounting estimate is applied retrospectively or prospectively?

A

Prospectively only

20
Q

A change in accounting principal is applied retrospectively or prospectively?

A

Retrospectively if practicable.

21
Q

An error correction is applied retrospectively or prospectively?

A

Retrospectively - restating prior periods

22
Q

Total Debt to Total Capital Ratio

A

Total Debt / Total Capital

23
Q

Debt to Equity Ratio

A

Total Debt / Stockholders Equity

24
Q

Long Term Debt to Equity Ratio

A

Long Term Debt / Stockholders Equity

25
Q

Debt to Total Assets Ratio

A

Total Liabilities / Total Assets

26
Q

Times Interest Earned Ratio

A

EBIT / Interest Expense

27
Q

Earnings to Fixed Charges Ratio

A

Earnings before fixed charges and taxes / fixed charges

28
Q

Cash Flow to Fixed Charges Ratio

A

(Cash From Operations + Fixed Charges + Tax Payments) / Fixed Charges
note that cash from operations is after tax

29
Q

Operating Leverage

A

use of a high level of plant and machinery in the production process, revealed through charges for depreciation, property taxes, etc.

30
Q

Financial leverage

A

use of a high level of debt in the firm’s financing structure, revealed through amounts paid out for interest.

31
Q

Degree of Leverage

A

Pre-fixed-cost income amount / Post-fixed-cost income amount

EBIT / Earnings before Tax (tax not included anywhere)

32
Q

DOL - single period version

A

Contribution Margin / Operating income or EBIT

33
Q

DOL - percentage change version

A

Percent Change in operating income or EBIT / Percent Change in Sales

34
Q

DFL - single period version

A

Earnings before interest and taxes (EBIT) / earnings before taxes

35
Q

DFL - percentage change version

A

Percent Change in Net Income / Percent Change in EBIT

36
Q

List forms of off-balance sheet financing.

A

Investment in unconsolidated (less than 50% int) entities
Joint Ventures
Special Purpose Entity (although, VIEs must be consolidated)
Factoring accounts receivables with recourse

37
Q

How should a change in an assets useful life be reflected?

A

Current and prospective years only

38
Q

Are deferred taxes included as current liability?

A

No!

39
Q

A change in the estimate for bad debts should be

A

Treated as affecting only the period of the change and then all future periods.

40
Q

Prepaids are/are not included in Acid Test?

A

are NOT

41
Q

Sustainable Growth Rate

A

ROE x (1 - Dividend Payout Ratio)

42
Q

For a given level of sales and holding all other financial statement items constant, a company’s return on equity (ROE) will <> as total assets <>

A

Decrease as total assets increase

43
Q

All else being equal, a company with a higher dividend-payout ratio will have a <> debt-to-assets ratio and a <> current ratio.

A

Higher, Lower

44
Q

In comparing the current ratios of two companies, why is it invalid to assume that the company with the higher current ratio is the better company?

A

A high current ratio may indicate inefficient use of various assets and liabilities

45
Q

Where to classify “reserve for bond retirement”

A

Equity section

CMA Exam Part 2 (12 decks)

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