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74 Cards in this Set
- Front
- Back
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Annual Report
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1) Letter from the President
2) Valance Sheet 3) Income Statement 4) Statement of Retained Earnings 5) Statement of Cash flows |
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Assets Column of Balance Sheet
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Current Assets
Fixed Assets Intangible Assets Total Assets |
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Liabilities and Owner's Equity Side of Balance Sheet
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Current Liabilities
Long Term Liabilities Preferred Stock Common Stock Retained earnings Total Liabilities and Shareholder's Equity |
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Net Working Capital
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Current Assets- Current Liabilities
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Book Value
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listed value on the balance sheet
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Market Value
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Stock Price*shares
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Goodwill
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Purchase Price- Book value at the time
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Retained Earnings
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Dividends + Addition to Retained Earnings ( over time)- not liquid
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Balance Sheet
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A statement from one point in time (i.e. one point in time)
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Income Statement
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Sales- COGS- Depreciation= EBIT
- Interest= EBT - TAxes= Net Income |
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3 Components of Cash flow Statements
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Operating Activities
Investing Activities Financing Activities |
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Marginal Taxes
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Tha tax rate paid on the next dollar earned
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Average Tax Liability
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tax bill/ net taxable income
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Cash flows from Assets
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=Cash Flow to Creditors + Cash Flow to Stockholders (accounting equation) or
Operating Cash Flow – Net Capital Spending – Changes in NWC |
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Operating Cash flow
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EBIT + Depreciation- Taxes
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Net Capital Spending
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ending net fixed assets - Beginning Fixed Assets + Depreciation
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Cash Flows to Creditors
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Interest Paid- net new borrowing
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Cash Flows to Stockholder's
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Dividends Paid - Net new money raised
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Internal Uses for financial Statement Information
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Performance Evaluation and planning
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External uses of financial statements
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1) Creditors
2) Suppliers 3) Stockholders 4) Customers |
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Benchmarking Methods
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1) Time trend analysis- how the company is changing over time
2) Peer Group Analysis- how the company stacks up to other companies in that industry |
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Problems with Benchmarking
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1) difficult for diversified firms
2) globalization and international trade makes comparison difficult because there are different accounting regulations worldwide 3) extraodrinary events |
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Common Size Balance Sheets
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compute all accounts as a percentage of total assets
(useful in comparing companies of different sizes) |
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Common Size Income Statement
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mpute all items as a percentage of sales
(useful in comparing companies of different sizes) |
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5 categories of Financial Ratios
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1) Short term solvency
2) Long term Solvency 3) Asset Management 4) profitability Ratios 5) Market Value Ratios |
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Long Term Solvency
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FInancial Leverage Ratios
measures the relative contributions of stockholders & creditors to the firm’s total financing |
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Asset Management
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Turnover Ratios
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Market Value ratios
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Incorporates investors’ perception of the value of the firm
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Current Ratios
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Current Assets/ Current Liabilities
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Quick Assets
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quick assets- Inventory/ Current Liabilities
(inveotry is less liquid than other assets) |
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Cash Ratio
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Cash/ Current Liabilities
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Total Debt Ratio
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(Total Assets – Total Equity) / Total Assets
shows the proportion of the company’s value represented by borrowed funds |
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Equity Multiplier
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Total Assets/ Total Equity
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Long Term Debt Ratio
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LTD / (LTD + Total equity)
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Times Interest Earned Ratio
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EBIT/Interest
(measures the number of times the income available to pay interest charges covers the firm’s interest expense) |
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Cash Coverage
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= (EBIT + Depreciation)/interest
(measures the amount of cash available to cover itnerest charges. |
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Receivables Turnover =
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Sales / Accts Rec
How many times a year do we collect opur Acct. Rec. |
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Average collection Period
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365/ Receivables Turnover Ratio
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Inventory Turnover Ratio
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COGS/ inventory
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Average sale ofinventory
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365/ Inventory turnover ratio
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Total Asset Turnover
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Sales/ Total Assets
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Fixed Asset Turnover
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Sales/NFA
(shows the sales volume generated per dollar invested into fixed assets) |
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Profit Margin
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=net income/ sales
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ROA
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Net Income/ Total Assets
(measures the ability for the firm to use its Assets) |
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ROE
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Return on Equity= Net Income/ Total Equity
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Profit Margin Info
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measures the firm's operating efficiency
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dividends paid are what part of the statement of cash flows
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financing
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bonds paying coupons are what part of the statement of cash flows
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operating
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number of shares info.
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shares outstanding all shares- shares in treasury
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Three forms of financing
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Cash
Issue equity Issue debt |
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incremental cash flows
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cash flows that will be included only if the project is accepted
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Erosion
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new product revenues gained at the expense of existing products or services
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Types of Incremental Cash flows
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1) Purchase of Equipment- cash outflow
2) Sale of Old Equipment- Cash inflow 3) Change in net working capital The tax liability depends on the capital gains on the sale MV-taxes= cash flow generated |
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costs not included in incremental costs
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sunk costs
financing costs (interest etc.) |
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info. Assets are usually listed on the balance sheet in order of liquidity
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1
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what are the 4 corporate tax rates (%)
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15,25,34,35
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another name for cash flow from assets
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free cash flow
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common base year statement
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a standardized financial statement presenting all items relative to a certain base year amount
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short term solvency- liquidity ratios
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1) Current Ratio (CA and CL are converted into cash with 1 year so it measures liquidity)
2) Quick (acid test) ratio- better measure of liquidity 3) Cash ratio 4) Net working capital to total assets 5) interval measure (how long could the business keep running? |
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Long term solvency ratios
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1) total Debt Ratio
2) Long term debt ratio 3) Times interest earned ratio (how well does the company have its interest obligations covered) |
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Asset Management/ Turnover ratios
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1) inventory turnover ratio and Days sales in inventory
2) Receivables turnover and days' sales in receivables 3) NWC turnover (how much work do we get out of our working capital) 4) Fixed Asset turnover ratio (sales generated for every dollar in fixed assets) 5) Total Asset Turnover ( for every dollar in assets, this amount of sales was generated) |
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Profitability measures
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1) Profit Margin
2) ROA- percentage of profit per dollar of assets 3) ROE- how did the shareholders do-for every dollar of equity this much money was generated |
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Market Value Measures
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1) PE-typical large company is 15-20. in 1974 it was 5. Japanese PE are generally higher than in the US
2)Price to sales- 3) Market to Book Ratio- (historic norm on DJIA is 1.7 4) Tobin's Q ratio- market value of asset/ replacement cost (if this ratio is high, the firm has attractive investment opportunities |
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short term solvency- liquidity ratios
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1) Current Ratio (CA and CL are converted into cash with 1 year so it measures liquidity)
2) Quick (acid test) ratio- better measure of liquidity 3) Cash ratio 4) Net working capital to total assets 5) interval measure (how long could the business keep running? |
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Long term solvency ratios
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1) total Debt Ratio
2) Long term debt ratio 3) Times interest earned ratio (how well does the company have its interest obligations covered) 4) debt/equity ratio 5) Equity Multiplier 6) cash coverage ratio |
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Asset Management/ Turnover ratios
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1) inventory turnover ratio and Days sales in inventory
2) Receivables turnover and days' sales in receivables 3) NWC turnover (how much work do we get out of our working capital) 4) Fixed Asset turnover ratio (sales generated for every dollar in fixed assets) 5) Total Asset Turnover ( for every dollar in assets, this amount of sales was generated) |
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Profitability measures
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1) Profit Margin
2) ROA- percentage of profit per dollar of assets 3) ROE- how did the shareholders do-for every dollar of equity this much money was generated |
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Market Value Measures
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1) PE-typical large company is 15-20. in 1974 it was 5. Japanese PE are generally higher than in the US
2)Price to sales- 3) Market to Book Ratio- (historic norm on DJIA is 1.7 4) Tobin's Q ratio- market value of asset/ replacement cost (if this ratio is high, the firm has attractive investment opportunities 5) PEG |
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Du Pont analysis
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breaks down ROE into 3 parts
1) operating efficiency (profit margin) 2) asset use efficiency (total asset turnover) 3) financial leverage ( equity multiplier if ROE is unsatisfactory, the dupont analysis will tell you why |
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what is Acrs depreciation method
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an accelerated type of depreciation method
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What is the macrs Depreciation method?
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everything is assigned to a depreciation class for tax purposes
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What is a capital gain
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only if the market price exceeds the original book value
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If an assets is sold the difference between Market Value and Book value is taxed`
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If market value is greater than book value the asset was overdepreciated and as a result undertaxed so we owe a tax liability
If the book value is greater than the market value the .asset was under depreciated and we realize a tax saving |
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3 approaches to OCF
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1) The Bottom-up Approach-start at the bottom line Net Income and then add back in depreciation
2) The Top-Down Approach- start at the top Sales- Costs-Taxes 3) The Tax Shield Approach (all equal the same answer |
