Liquidity Ratios - ANSWER-measures of a firm's short-term ability to meet its current obligations
Profitability Ratios - ANSWER-measures of a firm's
... [Show More] profitability relative to its assets (operating efficiency) and to its revenue (operating profitability)
Activity Ratios - ANSWER-Measure of efficiency of a firm's assets
Solvency Ratios - ANSWER-Measure of a firm's ability to pay its obligations
Inventory Turnover - ANSWER-COGS / avg inventory
Receivables Turnover - ANSWER-revenue / average accounts receivable
DSO (Days Sales Outstanding) - ANSWER-AR/Credit Sales * days in period
days in period/receivables turnover
A/P turnover - ANSWER-COGS / Average A/P
PPP (payables purchasing period) - ANSWER-days in period/ Accounts payable turnover
Current Ratio - ANSWER-current assets/current liabilities
Quick ratio (acid test) - ANSWER-Cash and AR divided by current liabilities
Gross profit margin - ANSWER-gross profit/revenue
operating margin - ANSWER-operating profit/revenue
net profit margin - ANSWER-net income/revenue
asset turnover - ANSWER-revenue/ average assets
return on assets (ROA) - ANSWER-Net Income / Average Assets
return on equity (ROE) - ANSWER-net income/ total equity
Basic EPS - ANSWER-(Net Income - Preferred Dividends)/(Weighted Average of Shares Outstanding)
Diluted EPS - ANSWER-diluted net income / weighted average diluted shares outstanding
dividend yield - ANSWER-dividends/net income
debt to EBITDA - ANSWER-Total Debt/EBITDA
interest coverage ratio - ANSWER-EBIT/ interest expense
fixed charge coverage - ANSWER-(EBIT + Lease charges)/(Interest Payments + Lease charges)
Debt to Total Assets - ANSWER-Total Debt/Total Assets
debt to equity - ANSWER-total liabilities/total equity
cash from operations (CFO) - ANSWER-uses net income as a starting point and converts accrual base net income into cash flow from operations via a series of adjustments
cash from investing activities (CFI) - ANSWER-capital expenditures / asset sales and purchases
cash from financing activities (CFF) - ANSWER-new borrowing / pay down of debt / new issuance of stock / share repurchases / issuance of dividends
working capital - ANSWER--CFO
-increase in current assets = cash outflow
-increase in current liabilities = cash inflow
asset write downs / impairments - ANSWER--added back to CFS via CFO
Increases in A/R, inventory, prepaid expenses, other current assets should be _____________ net income to get to CFO - ANSWER-subtracted
increases in A/P, accrued expenses, other current liabilities should be ____________ net income to get to CFO - ANSWER-added
gains on sale of assets - ANSWER-subtracted from CFO
stock based compensation - ANSWER-added to CFO
Common CFI inflows/outflows - ANSWER-- capital expenditures
- purchases of intangible assets
+ asset sales
+ sales of debt/ equity security
- purchases of debt/equity security
Common CFS inflows/outflows - ANSWER--Issuance / repayment of debt (cash inflow / outflow)
-Common stock issued / repurchased (cash inflow / outflow)
-Payment of common & preferred dividends (cash outflow)
Assumptions of Accounting - ANSWER-accounting entity, going concern, measurement, periodicity
principles of accounting - ANSWER-1. Historical Cost
2. Revenue Recognition
3. Matching Principle
4. Full Disclosure
constraints of accounting - ANSWER-1. Estimates and judgements
2. materiality
3. consistency
4. conservatism
Form 10-K - ANSWER-Publicly traded companies must file a report at the end of every fiscal year which includes a thorough overview of their businesses and finances as well as financial statements
Form 10-Q - ANSWER-At the end of each quarter of the fiscal year (for the first three quarters) publicly traded companies file a report with the SEC including financial statements and non-financial data
Form 8-Q - ANSWER-Required filing any time a company undergoes or announces a materially significant event such as an earnings press release, an acquisition, disposal of assets, bankruptcy, etc.
Form 14A - ANSWER-Required filing prior to company's annual shareholder meetings
S-1 Registration - ANSWER-IPO
The only parts of a financial statement that a financial analyst will need to pay attention to: - ANSWER-oPart 1, item 1. Business
oPart 2, item 6. Selected financial data
oPart 2, item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
oPart 2, item 8. Financial statements and supplementary data
Revenue - ANSWER-Represents proceeds from the sale of goods and services produced or offered by a company
Revenue Recognition: Multiple Deliverables - ANSWER-For sales of bundled products, companies should assign individual values to each of the bundled components
Revenue Recognition: Long-term projects - ANSWER-1. Percentage Completion Method
2. Completed Contract Method
Percentage Completion Method - ANSWER-revenues are recognized on the basis of the percentage of total work completed during the accounting period
Completed Contract Method - ANSWER-allows revenue recognition only once the entire project has been completed (rarely used in the US)
COGS - ANSWER-Represents company's direct cost of manufacture or procurement of a good or service for a company to sell to generate revenue
Examples of COGS - ANSWER-Merchandise inventory
Manufactured goods inventory
•Raw material costs
•Direct labor costs
•Factory overhead
Shipping and delivery costs
Any other costs associated with the generation of revenue
Depreciation of fixed assets
Gross Profit = ________ - ___________ - ANSWER-Net revenue, COGS
SG&A - ANSWER-Operating expenses not covered in COGS
Examples of SG&A - ANSWER--A store lease expense for a retail business
-Salaries and commissions of sales people and cashiers
-Marketing and advertising expenses
-Administrative, IT, and office support staff
-Equipment used for selling (cash register)
-Executive salaries
-Legal expenses
R&D - ANSWER-R&D expenses stem from a company's activities that are directed at developing new products or procedures
Depreciation Expense - ANSWER-Quantifies wear and tear of a physical asset through systematic decrease of historical value
Useful Life of Fixed Assets (examples) - ANSWER-Plants and buildings 15-40 yrs
Machinery & Equipment 3-20 yrs
Furniture & Fixtures 5-10 yrs
Computer Software & Hardware 3-5 yrs
Is land depreciated? - ANSWER-no
Depreciation is included within ____________ depending on whether the asset being depreciated is directly tied with manufacture or procurement or selling or marketing - ANSWER-COGS or SG&A
Depreciation and amortization are a ________ expense - ANSWER-non-cash
Straight Line Depreciation - ANSWER-Annual depreciation expense = (original cost- salvage value)/useful life
Accelerated Depreciation Methods - ANSWER--calculates a greater amount of depreciation in early years
-declining balance, sum of years digits, units of production
Amortization Expense - ANSWER-Allocation of the cost of intangible assets over the number of years that these assets are expected to help generate revenue for the company
Types of Intangible assets - ANSWER-Customer lists
Franchise, membership, licenses
Patents and technology
Trademarks and good will are __________ because they are considered to have indefinite useful life - ANSWER-not amoritzed
Expenses associated with developing intangible assets are_____________as they are incurred - ANSWER-fully expensd
Stock based compensation expense - ANSWER-Expense of employee's salaries are embedded within the expense categories based on the employee's job function
-same with stock based compensation
Other operating expenses/income - ANSWER-Gains/losses on sales of fixed assets
Gains/losses from legal statements
Restructuring expenses and severance costs
Inventory write down
Non-operating income and expenses - ANSWER--Everything below operating profit
-Interest Expense
-Interest Income
-Usually represnted as Net Income Expense
Other non-operating income/expensea - ANSWER--income: increases in value and gains on sale on certain financial instruments
-expenses: decreases in value and losses on sale on certain investments and debt
Tax expense does not equal actual cash taxes paid - ANSWER-Because of the ability of companies to defer certain taxes, tax expense companies recognize on their income statement does not equal acutal cash taxes paid that period
Net Income - ANSWER-Measure of profitability on income statement income after all expenses have been paid out
Shares Outstanding = - ANSWER-Shares issued - Treasury Stock
Treasury stock - ANSWER-stock that has beein issued then repurchased
Basic shares outstanding - ANSWER-includes only actual shareholders
Diluted shares outstanding - ANSWER-include impact of potentially dilutive security [Show Less]