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42 Cards in this Set
- Front
- Back
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Cash flow-to-revenue ratio
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- Measures the amount of operating cash flow generated for each dollar of revenue
= CFO / net revenue |
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How does an increase in accounts payable affect cash collections?
How does an increase in accounts receivable affect cash collections? |
A. P. increase decresases cash collections.
A. R. increase has no effect on cash collections. (Accounts payable results from a firm's purchases from its suppliers.) |
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Where are dividends paid reported on the Cash Flow Statement in US Gaap and IFRS?
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US GAAP - CFF
IFRS - CFO or CFF |
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Sale of obsolete equipment is classified as cash flow from...
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CFI
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retiring debt secureties by issuing equity is classified as....
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a non-cash transaction.
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How are dividends RECEIVED reported?
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CFO
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The CF statement can be converted into common-size format by expressing each line-item as a percentage of....
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Revenue
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How do you calculate "Total Cash Collections"?
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Total Cash Collections = Sales - increase in receivables
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How do you calculate "Cash Paid to Suppliers"?
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Cash Paid to Suppliers = - COGS + decrease in inventory + increase in A.P.
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What are "Trade Payables" ?
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similar to accounts payable, it is an amount of money owed to suppliers.
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What is "Working Capital"? (Sometimes called "Net Working Capital")
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Current Assets - Current Liabilities
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What do "Activity Ratios" measure?
What ratios are included? |
how efficiently the firm is managing its assets. // Efficiency of day-to-day tasks / operations.
Include: Receivables turnover, days of sales outstanding, inventory turnover, days fo inventory on hand, payables turnover, number of days of payables, total asset turnover, fixed asset turnover, working capital turnover. |
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What do "Liquidity Ratios" measure?
What ratios are included? |
the ability to meet s-t liabilities.
Include: current ratio, quick ratio, cash ratio, defensive ratio, cash conversion cycle |
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What do "Solvency Ratios" measure?
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the ability to meet l-t liabilities
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What do "Profitability Ratios" measure?
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the ability to generate profitable sales from asset base.
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What do "Valuation Ratios" measure?
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Quality of asset or flow associated wtih an ownership claim
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What does "Dividends Declared" refer to?
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total dividends on a firm-wide basis
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The proportion of a firm's N.I. that is retained to fund growth is an important determinant of the firm's ______________________ .
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Sustainable growth rate
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What is the "Retention Rate (RR)" ?
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The proportion of earnings reinvested.
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What is the formula for Sustainable Growth rate?
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g = RR x ROE
(RR = Retention Rate) |
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How does CFA define a Business Segment?
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a portion of a larger company that accounts for more than 10% of the company's revenues or assets, and is distinguishable from the company's other lines of business in terms of the risk and return characteristics of the segment.
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Three methods of examining the variability of financial outcomes around point estimates are:
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sensitivity analysis, scenario analysis and simulation
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For ratios that use only income statement items, use values from....
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CURRENT income statement.
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What is a "Pure Ratio"
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if Numerater / Denominator both come from either income statement or balance sheet.
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What is a "Mixed Ratio"
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Either Numerator / Denominator comes from the Income Statement, and the other from the Balance Sheet.
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For ratios that use only balance sheet items, use values from....
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CURRENT balance sheet
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For ratios using both "Income Statement" and "Balance Sheet" items, use values from....
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CURRENT income statement and AVERAGE value for balance sheet item.
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Inventory Turnover
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COGS / avg. Inventory
(How many times does inventory drop to 0 and you need to re-purchase) |
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Days of inventory on hand (DOH)
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365 / Inventory Turnover
(number of days that inventory is on hand) |
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Receivables Turnover
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Revenue / Avg. A.R.
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Days of sales outstanding (DSO)
aka Average Collection Period |
365 / Receivables Turnover
(Avg. number of days it takes to collect cash from customer / Credit Terms) |
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Payables Turnover
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Purchases / avg. Trade Payables
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Number of days of payables
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365 / Payables Turnover
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Working Capital Turnover
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Revenue / avg. working capital
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Working capital
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Current Assets - Current Liabilities
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Asset Turnover
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Sales / avg. Total Assets
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Inventory Turnover
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COGS / avg. Total Inventory
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A company's current ratio is 1.9 If some of the accounts payable are paid off from the cash account, what happens to the current ratio?
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Current Ratio = (Cash + A.R. + inv) / A.P.
So the numerator decreases by less than the denominator, so Current Ratio increases. |
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A company's quick ratio is 1.2. If inventory were purchased for cash, what happens to the quick ratio?
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Quick ratio = (Cash + A.R.) / AP (Inventories are excluded)
Quick ratio decreases. |
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Cash Conversion Cycle
- what type of ratio? - equation? |
(Liquidity Ratio)
CCC = Days Sales Outstanding + Days inventory on hand - number of days of payables = DSO + DOH - days of payables how long it takes to sell inventory and receive payment. |
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Interest Coverage Ratio
- what type of ratio? - equation? |
(Solvency Ratio)
= EBIT / Interest Payments |
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Fixed Charge Coverage Ratio
- what type of ratio? - equation? |
(Solvency Ratio)
(EBIT + Lease Payments) / (Int payments + Lease Payments) |
