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89 Cards in this Set
- Front
- Back
receivables turnover
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annual sales / average receivables
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days of sales outstanding
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365 / receivables turnover
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inventory turnover
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COGS / average inventory
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days of inventory on hand
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365 / inventory turnover
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payables turnover
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purchases / average trade payables
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number of days of payables
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365 / payables turnover
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total asset turnover
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revenue / average total assets
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fix asset turnover
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revenue / average net fixed assets
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working capital
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current assets - current liabilities
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working capital turnover
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revenue / average working capital
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Activity Ratios
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receivables turnover
days of sales outstanding inventory turnover days of inventory on hand payables turnover number of days of payables total asset turnover fix asset turnover working capital working capital turnover |
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current ratio
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current assets / current liabilities
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quick ratio
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(cash + marketable securities + receivables) / current liabilities
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cash ratio
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(cash + marketable securities) / current liabilities
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defensive interval
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(cash + marketable securities + receivables) / average daily expenditures
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cash conversion cycle
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day of sales outstanding + days of inventory on hand - number of days of payables
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liquidity ratio
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current ratio
quick ratio cash ratio defensive interval cash conversion cycle |
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debt-to-equity
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total debt / total shareholder's equity
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debt-to-capital
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total debt / (total debt + total shareholder's equity)
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debt-to-assets
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total debt / total assets
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financial leverage
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average total assets / average total equity
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interest coverage
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EBIT / interest payments
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fixed charge coverage
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(EBIT + lease payments) / (interest payments + lease payments)
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solvency ratio
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debt-to-equity
debt-to-capital debt-to-assets financial leverage interest coverage fixed charge coverage |
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net profit margin
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net income / revenue
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gross profit margin
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gross profit / revenue
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operating profit margin
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operating income / revenue or EBIT / revenue
strictly speaking EBIT also includes non-operating income |
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pretax margin
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EBT / revenue
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ROA
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net income / average total assets
[net income + interest expense(1-tax rate)] / average total assets |
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operating return on assets
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operating income / average total assets or EBIT / average total assets
strictly speaking EBIT also includes non-operating income |
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return on total capital
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EBIT / average total capital
total capital includes short-term, long-term debt, preferred equity and common equity |
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ROE
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net income / average total equity
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return on common equity
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(net income - preferred dividends) / average common equity
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profitability ratios
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net profit margin
gross profit margin operating profit margin pretax margin ROA operating return on assets return on total capital ROE return on common equity |
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FCFF
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Free Cash Flow to the Firm
= net income + noncash charges + [interest expense * ( 1 - tax rate)] - fixed capital investment - working capital invesetment Or CFO + [interest expense * ( 1 - tax rate)] - fixed capital investment - FCFF is cash flow to equity holder and debt holder - noncash charges include depreciation and amortization |
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FCFE
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Free Cash Flow to Equity
= cash flow from operations - fixed capital investment + net borrowing |
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common-size income statement ratios
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income statement account / sales
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common-size balance sheet ratios
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balance sheet account / total assets
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common-size cash flow ratios
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cash flow statement account / revenues
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original DuPont equation
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ROE = net profit margin * asset turnover * leverage ratio
leverage ratio is also called equity multiplier |
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extended DuPont equation
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ROE = tax burden * interst burden * EBIT margin * asset turnover * financial leverage
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basic EPS
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(net income - preferred dividends) / weighted average number of common shares outstanding
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diluted EPS
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[net income - preferred dividends + convertible preferred dividends + convertible debt interest(1- tax rate)] / (weighted average shares + shares from conversion of conv. pft. shares + shares from conversion of conv. debt + shares issuable from stock options)
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coefficient of variation
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STD / Mean
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CV Sales
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STD sales / mean sales
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CV Operating income
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STD operating income / mean operating income
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CV net income
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STD net income / mean net income
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ending inventory
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beginning inventory + purchases - COGS
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straight-line depreciation
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(cost - salvage value) / useful life
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DDB depreciation
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(2 / useful life) * (cost - accumulated depreciation)
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units-of-production depreciation
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(original cost - salvage value) / life in output units * output unites in the period
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income tax expense
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taxes payable + ΔDTL - ΔDTA
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interest expense
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the market rate at issue * the balance sheet value of the liability at the beginning of the period
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cash flow-to-revenue
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CFO / net revenue
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cash return-on-assets
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CFO / average total assets
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cash ROE
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CFO / average total equity
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cash-to-income
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CFO / operating income
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cash flow per share
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(CFO - preferred dividends) / weighted average number of common shares
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debt coverage
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CFO / total debt
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interest coverage ratio
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(CFO + interest paid + taxes paid) / interest paid
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reinvestment ratio
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CFO / cash paid for long-term assets
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debt payment
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CFO / cash long-term debt repayment
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dividend payment
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CFO / dividends paid
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investing and financing (cash flow)
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CFO / cash outflows from investing and financing activities
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Cash Flow from Operating Activities
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EBIT + Depreciation - Taxes
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Calculate CFO using indirect method
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1. Start with Net Income
2. Subtract gains or add losses resulted from financing or investing cash flows 3. Add back all non-cash charges to income (such as depreciation and amortization) and subtract all non-cash components of revenue 4. Add or subtract changes to balance sheet operating accounts: -> Increases in the operating asset accounts (use of cash) are subtracted, while decreases (source of cash) are added -> Increase in the operating liability accounts (source of cash) are added, while decrease (use of cash) are subtracted |
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gross profit, operating profit, EBIT, EBT, net income
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gross profit = revenue - COGS
operating profit = gross profit - operating expenses (SG&A, depreciation) EBIT = operating profit + other income - other expense EBT = EBIT - interest expenses net income = EBT - tax expenses |
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What is an auditor's qualified, unqualified opinion and disclaimer of opinion?
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Unqualified opinion means the financial statements are clean and fairly presented
Qualified opinion means the financial statements are not fairly presented Disclaimer of opinion means the auditor is not able to express an opinion |
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What is initial trial balance and what is adjusted trial balance?
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Initial trail balance was prepared at the end of each accounting period to show the balance of each account. If adjustment is needed, adjustments are made and reflected in adjusted trial balance.
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What are fundamental and enhancing characteristics of financial statements?
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Fundamental: relevance and faithful representation
Enhancing: comparability, verifiability, timeliness, and understandability |
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What are the characteristics of a coherent financial reporting framework?
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Transparency, comprehensiveness, consistency
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List four type of transactions that affect equity, but not net income.
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Gains and losses from foreign currency translation
Pension obligation adjustments Unrealized gains and losses from cash flow hedging activities Unrealized gains and losses from available-for-sale securities |
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How to know if convertible debt is dilutive or antidilutive?
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Dilutive: [convertible debt interest * (1-t)] / convertible debt shares < basic EPS
Antidilutive: the other way round |
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For inventory valuation in balance sheet, what is the difference between IFRS and GAAP?
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IFRS: lower of cost and net realizable value (selling price - completion cost)
GAAP: lower of cost and market (replacement cost) |
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For PP&E valuation in balance sheet, what is the difference between IFRS and GAAP?
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IFRS: PP&E can be reported using cost model or the revaluation model
GAAP: only allows cost model (recoveries of impairment losses is not allowed under GAAP) |
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How are R&D costs reported differently under IFRS and GAAP?
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IFRS: research costs are expensed and development costs are capitalized
GAAP: R&D costs are both expenses |
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How is good will calculated?
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Goodwill = purchase price - fair value (during acquisition)
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What are the components of owner's equity (shareholders' equity)?
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Contributed capital
preferred stock Noncontrolling interest (of subsidiary) retained earnings treasury stock accumulated other comprehensive income |
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What is difference between trading securities and available-for-sale securities with regard to its treatment in income statement?
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Trading security:
any urealized gains and losses are recognized in the income statement Available-for-sale securities: unrealized gains and losses are not recognized in the income statement, but are reported in the accumulated other comprehensive income as part of shareholder's equity |
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How are dividends received, dividends paid, interest received, interest paid, taxes paid treated in IFRS and GAAP?
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IFRS:
Dividends and interests paid can be treated as operating cash flow or financing cash flow Interest received and dividends received can be treated as operating or investing cash flow. GAAP: Dividends paid are financing cash flows Interest paid, interest received, and dividends received are operating cash flows |
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How to calculate the recoverable amount of an asset under IFRS?
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the greater of fair value less selling cost and the value in use
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How are interest earned from temporary investment using borrowed funds for construction of an asset treated differently under IFRS and GAAP?
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IFRS: interest earned from temporary investment using borrowed funds is used to reduces the capitalized interest
GAAP: not allowed |
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Effective Interest Rate?
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interest expense = book value of bond liability at the beginning * bond's yield at issuance
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What is a synthetic lease?
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(in united states)
For tax reporting: treat lease as an ownership, thus reducing tax base by factoring in depreciation For financial reporting: the lease is treated as rental agreement (thus the liability is off the balance sheet) |
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How are issuance costs associated with bonds treated under IFRS and GAAP?
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IFRS: bond issuance costs are netted against the bond proceeds
GAAP: issuance costs are capitalized as an asset and expenses are recognized over the term of the bond |
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How is early redemption of bonds recognized in financial reporting?
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Gain and loss is recognized by subtracting the redemption price from the book value at the acquisition date.
Under GAAP, remaining unamortized bond issuance costs must be written off. Under IFRS, it's not required. It's reported in income statement, usually as a part of continuing operations. |
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What is accrued liabilities?
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expenses that have been recognized in the income statement but are not yet contractually due. (accrued liabilities are not interest bearing)
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What is total debt?
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total debt = long-term debt + interest bearing short-term debt
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What is the fraud triangle?
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Incentives and pressures
Opportunities Attitudes and rationalizations |