Week 6: Ratios and etc. Flashcards

1
Q

Why are ratios important?

A

Comparisons are easier

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2
Q

When comparing company’s ratios, the firms should be:

A

The same size and in the same accounting system (IFRS or USG)

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3
Q

Gross profit margin

A

(Revenue - COGS) / Revenue

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4
Q

Debt to Equity Ratio

A

= Total liabilities / shareholder equity

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5
Q

Price to earning ratio

A

share price / earnings per share

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6
Q

Return On Assets ratio

A

= Net Income / Total Assets

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7
Q

Debt Ratio

A

Total Liabilities / Total Assets

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8
Q

Inventory Turnover

A

Cost of Goods sold / average inventory

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9
Q

Working Capital

A

Current assets - Current liabilities

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10
Q

Day’s sales in inventory

A

Average inventory / (COGS / 365)

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11
Q

Gross Profit Ratio*

A

Gross profit / Net Sales *100

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12
Q

Working Capital Ratio

A

Current Assets / Current Liabilities

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13
Q

ROA

A

Net Income / Total Assets

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14
Q

Non-financials examples

A

Airlines: Capacity

Hotels: Occupancy

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15
Q

Gross profit

A

Revenue - COGS

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16
Q

Dividend Ratio

A

Dividends / Net Income

17
Q

Types of Ratios

A

Profitability, liquidity, and debt ratios

18
Q

P/E ratio

A

Price per share / Earnings per share

19
Q

What is a high leverage ratio?

A

a 3/1 D/E ratio is very high

20
Q

Provisions

A

Will happen and you will know the amount

Bad debt or warrenties

21
Q

Contingent liability

A

You are not sure if it is going to happen or how much

22
Q

Lease

A

Temporary rights to PPE

All deferred taxes are long term

23
Q

Development in IFRS lasts:

A

20 years

Amortized over 20 years

24
Q

Component depreciation

A

Used in IFRS not USG

Depreciating the individual parts of PPE.

The engine may be depreciated over 15 years while the chassis may only be 5

25
Q

Impairment in the different accounting systems

A

USG: Only lets you go down

IFRS: Impairment can be reversed (The value of an asset can go down and then back up)

26
Q

Leases in the different accounting system

A

IFRS: “no bright lines”

27
Q

Purpose of working capital ratio

A

Tells you how liquid a firm is

28
Q

Purpose of D/E ratio

A

Tells you how leveraged a firm is

29
Q

A/R turnover in days

A

Accounts receivable / (Revenue/365)

30
Q

Kevin Enters into a contract on 10/1/19 with AT&T for 2 years for 2400 and he receives a free Apple phone. The fair value of the same Apple phone in an Apple store is $600. How and when would AT&T recognize revenue

A

10/1/19
Dr. Cash 2400
Cr. Def Rev 1800
Cr. Rev 600

Every month
Dr. Def Rev 75
Cr. Rev 75