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FIN2704 > Week 2: Financial Statement Analysis > Flashcards

Week 2: Financial Statement Analysis Flashcards

1
Q

Main Equation for Balance Sheet

A

Assets = Liability + Equity (ALE)

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2
Q

Enterprise Value Formula & Definition

A

Enterprise Value = Market Value of Equity + Debt - Excess Cash

Assesses the value of underlying business assets while excluding the value of any non-operating assets. Cost of a company’s operating assets if someone were to acquire only those assets.

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3
Q

3 Major Categories of Statement of Cash Flows

A
  1. Operating
  2. Investment
  3. Financing
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4
Q

Fixed Asset Acquisitions

A

Fixed Asset Acquisitions = - (Change in net fixed assets + depreciation for the year)

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5
Q

4 Differences between Profits and Cash Flows

A
  1. Profits are reduced by depreciation (non-cash expense)
  2. Profits ignore cash expenditures on new fixed assets
  3. Profits record income and expenses at the time of sales, not exchange
  4. Profits do not consider changes in working capital
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6
Q

What is the Finance Concept of Cash Flow?

A

We care about cash generated from operations over the life of the asset

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7
Q

Two types of current liabilities

A
  1. Interest Bearing (result of financing activities)
  2. Non-Interest Bearing (result of operating activities)
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8
Q

Cash Flow from Assets

A
  1. CFFA = Operating Cash Flow (OCF) - Net Capital Spending - Change in Net Operating Working Capital
  2. CFFA + Interest Tax Shield = Cash Flow to Creditors + Cash Flow to Stockholders
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9
Q

5 Categories of Ratios

A
  1. Liquidity (Short-Term solvency)
  2. Long-Term Solvency (Financial Leverage)
  3. Asset Management (Turnover / Efficiency)
  4. Profitability
  5. Market Value
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10
Q

Current Ratio (Liquidity)

A

Current Ratio = Current Assets / Current Liabilities

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11
Q

Quick Ratio (Liquidity)

A

Quick Ratio = (Current Assets - Inventory) / Current Liabilities

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12
Q

Cash Ratio (Liquidity)

A

Cash Ratio = Cash / Current Liabilities

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13
Q

NWC to Total Assets (Liquidity)

A

NWC / Total Assets

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14
Q

Interval Measure (Liquidity)

A

Interval Measure = Current Assets / Average Daily Operating Costs

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15
Q

Total Debt Ratio (LT Solvency)

A

Total Debt Ratio = (Total Assets - Total Equity) / Total Assets

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16
Q

Debt / Equity Ratio (LT Solvency)

A

Debt / Equity Ratio = (Total Assets - Total Equity) / Total Equity

17
Q

Equity Multiplier (LT Solvency)

A

Equity Multiplier = Total Assets / Total Equity

18
Q

Long Term Debt Ratio (LT Solvency)

A

Long Term Debt Ratio = Long Term Debt / (Long Term Debt + Total Equity)

19
Q

Times Interest Earned Ratio (LT Solvency)

A

Times Interest Earned Ratio = EBIT / Interest

20
Q

Cash Coverage Ratio (LT Solvency)

A

Cash Coverage Ratio = (EBIT + Depreciation) / Interest

21
Q

Inventory Turnover (Asset Management)

A

Inventory Turnover = COGS / Inventory

22
Q

Days’ Sales in Inventory (Asset Management)

A

Days’ Sales in Inventory = 365 / Inventory Turnover

23
Q

Receivables Turnover (Asset Management)

A

Receivables Turnover = Credit Sales / Receivables

24
Q

Days Sales Outstanding (Asset Management)

A

Days Sales Outstanding = 365 / Receivables Turnover

25
Q

FA Turnover (Asset Management)

A

FA Turnover = Sales ÷ Net fixed assets

26
Q

TA Turnover (Asset Management)

A

TA Turnover = Sales ÷ Total assets

27
Q

Profit margin (Profitability)

A

Profit margin (PM) = Net income ÷ Sales

28
Q

Basic Earning Power (Profitability)

A

Basic Earning Power (BEP) = EBIT ÷ Total assets

29
Q

Return On Assets (Profitability)

A

Return On Assets (ROA) = Net income ÷ Total assets

30
Q

Return On Equity (Profitability)

A

Return On Equity (ROE) = Net income ÷ Total common equity

31
Q

Dupont Formula

A

ROE= (NI / Sales) × (Sales / TA) x (TA / TE) =PM × TATO × EM

FIN2704 (2 decks)

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