Cfa Level 1 Financial Statements Analysis Formulas

Front 1

receivables turnover

Back 1

annual sales / average receivables

Front 2

days of sales outstanding

Back 2

365 / receivables turnover

Front 3

inventory turnover

Back 3

COGS / average inventory

Front 4

days of inventory on hand

Back 4

365 / inventory turnover

Front 5

payables turnover

Back 5

purchases / average trade payables

Front 6

number of days of payables

Back 6

365 / payables turnover

Front 7

total asset turnover

Back 7

revenue / average total assets

Front 8

fix asset turnover

Back 8

revenue / average net fixed assets

Front 9

working capital

Back 9

current assets - current liabilities

Front 10

working capital turnover

Back 10

revenue / average working capital

Front 11

Activity Ratios

Back 11

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

Front 12

current ratio

Back 12

current assets / current liabilities

Front 13

quick ratio

Back 13

(cash + marketable securities + receivables) / current liabilities

Front 14

cash ratio

Back 14

(cash + marketable securities) / current liabilities

Front 15

defensive interval

Back 15

(cash + marketable securities + receivables) / average daily expenditures

Front 16

cash conversion cycle

Back 16

day of sales outstanding + days of inventory on hand - number of days of payables

Front 17

liquidity ratio

Back 17

current ratio
quick ratio
cash ratio
defensive interval
cash conversion cycle

Front 18

debt-to-equity

Back 18

total debt / total shareholder's equity

Front 19

debt-to-capital

Back 19

total debt / (total debt + total shareholder's equity)

Front 20

debt-to-assets

Back 20

total debt / total assets

Front 21

financial leverage

Back 21

average total assets / average total equity

Front 22

interest coverage

Back 22

EBIT / interest payments

Front 23

fixed charge coverage

Back 23

(EBIT + lease payments) / (interest payments + lease payments)

Front 24

solvency ratio

Back 24

debt-to-equity
debt-to-capital
debt-to-assets
financial leverage
interest coverage
fixed charge coverage

Front 25

net profit margin

Back 25

net income / revenue

Front 26

gross profit margin

Back 26

gross profit / revenue

Front 27

operating profit margin

Back 27

operating income / revenue or EBIT / revenue

strictly speaking EBIT also includes non-operating income

Front 28

pretax margin

Back 28

EBT / revenue

Front 29

ROA

Back 29

net income / average total assets
[net income + interest expense(1-tax rate)] / average total assets

Front 30

operating return on assets

Back 30

operating income / average total assets or EBIT / average total assets

strictly speaking EBIT also includes non-operating income

Front 31

return on total capital

Back 31

EBIT / average total capital

total capital includes short-term, long-term debt, preferred equity and common equity

Front 32

ROE

Back 32

net income / average total equity

Front 33

return on common equity

Back 33

(net income - preferred dividends) / average common equity

Front 34

profitability ratios

Back 34

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

Front 35

FCFF

Back 35

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

Front 36

FCFE

Back 36

Free Cash Flow to Equity
= cash flow from operations - fixed capital investment + net borrowing

Front 37

common-size income statement ratios

Back 37

income statement account / sales

Front 38

common-size balance sheet ratios

Back 38

balance sheet account / total assets

Front 39

common-size cash flow ratios

Back 39

cash flow statement account / revenues

Front 40

original DuPont equation

Back 40

ROE = net profit margin * asset turnover * leverage ratio

leverage ratio is also called equity multiplier

Front 41

extended DuPont equation

Back 41

ROE = tax burden * interst burden * EBIT margin * asset turnover * financial leverage

Front 42

basic EPS

Back 42

(net income - preferred dividends) / weighted average number of common shares outstanding

Front 43

diluted EPS

Back 43

[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)

Front 44

coefficient of variation

Back 44

STD / Mean

Front 45

CV Sales

Back 45

STD sales / mean sales

Front 46

CV Operating income

Back 46

STD operating income / mean operating income

Front 47

CV net income

Back 47

STD net income / mean net income

Front 48

ending inventory

Back 48

beginning inventory + purchases - COGS

Front 49

straight-line depreciation

Back 49

(cost - salvage value) / useful life

Front 50

DDB depreciation

Back 50

(2 / useful life) * (cost - accumulated depreciation)

Front 51

units-of-production depreciation

Back 51

(original cost - salvage value) / life in output units * output unites in the period

Front 52

income tax expense

Back 52

taxes payable + ΔDTL - ΔDTA

Front 53

interest expense

Back 53

the market rate at issue * the balance sheet value of the liability at the beginning of the period

Front 54

cash flow-to-revenue

Back 54

CFO / net revenue

Front 55

cash return-on-assets

Back 55

CFO / average total assets

Front 56

cash ROE

Back 56

CFO / average total equity

Front 57

cash-to-income

Back 57

CFO / operating income

Front 58

cash flow per share

Back 58

(CFO - preferred dividends) / weighted average number of common shares

Front 59

debt coverage

Back 59

CFO / total debt

Front 60

interest coverage ratio

Back 60

(CFO + interest paid + taxes paid) / interest paid

Front 61

reinvestment ratio

Back 61

CFO / cash paid for long-term assets

Front 62

debt payment

Back 62

CFO / cash long-term debt repayment

Front 63

dividend payment

Back 63

CFO / dividends paid

Front 64

investing and financing (cash flow)

Back 64

CFO / cash outflows from investing and financing activities

Front 65

Cash Flow from Operating Activities

Back 65

EBIT + Depreciation - Taxes

Front 66

Calculate CFO using indirect method

Back 66

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

Front 67

gross profit, operating profit, EBIT, EBT, net income

Back 67

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

Front 68

What is an auditor's qualified, unqualified opinion and disclaimer of opinion?

Back 68

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

Front 69

What is initial trial balance and what is adjusted trial balance?

Back 69

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.

Front 70

What are fundamental and enhancing characteristics of financial statements?

Back 70

Fundamental: relevance and faithful representation
Enhancing: comparability, verifiability, timeliness, and understandability

Front 71

What are the characteristics of a coherent financial reporting framework?

Back 71

Transparency, comprehensiveness, consistency

Front 72

List four type of transactions that affect equity, but not net income.

Back 72

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

Front 73

How to know if convertible debt is dilutive or antidilutive?

Back 73

Dilutive: [convertible debt interest * (1-t)] / convertible debt shares < basic EPS
Antidilutive: the other way round

Front 74

For inventory valuation in balance sheet, what is the difference between IFRS and GAAP?

Back 74

IFRS: lower of cost and net realizable value (selling price - completion cost)
GAAP: lower of cost and market (replacement cost)

Front 75

For PP&E valuation in balance sheet, what is the difference between IFRS and GAAP?

Back 75

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)

Front 76

How are R&D costs reported differently under IFRS and GAAP?

Back 76

IFRS: research costs are expensed and development costs are capitalized
GAAP: R&D costs are both expenses

Front 77

How is good will calculated?

Back 77

Goodwill = purchase price - fair value (during acquisition)

Front 78

What are the components of owner's equity (shareholders' equity)?

Back 78

Contributed capital
preferred stock
Noncontrolling interest (of subsidiary)
retained earnings
treasury stock
accumulated other comprehensive income

Front 79

What is difference between trading securities and available-for-sale securities with regard to its treatment in income statement?

Back 79

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

Front 80

How are dividends received, dividends paid, interest received, interest paid, taxes paid treated in IFRS and GAAP?

Back 80

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

Front 81

How to calculate the recoverable amount of an asset under IFRS?

Back 81

the greater of fair value less selling cost and the value in use

Front 82

How are interest earned from temporary investment using borrowed funds for construction of an asset treated differently under IFRS and GAAP?

Back 82

IFRS: interest earned from temporary investment using borrowed funds is used to reduces the capitalized interest
GAAP: not allowed

Front 83

Effective Interest Rate?

Back 83

interest expense = book value of bond liability at the beginning * bond's yield at issuance

Front 84

What is a synthetic lease?

Back 84

(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)

Front 85

How are issuance costs associated with bonds treated under IFRS and GAAP?

Back 85

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

Front 86

How is early redemption of bonds recognized in financial reporting?

Back 86

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.

Front 87

What is accrued liabilities?

Back 87

expenses that have been recognized in the income statement but are not yet contractually due. (accrued liabilities are not interest bearing)

Front 88

What is total debt?

Back 88

total debt = long-term debt + interest bearing short-term debt

Front 89

What is the fraud triangle?

Back 89

Incentives and pressures
Opportunities
Attitudes and rationalizations