Financial Reporting & Analysis

Front 1

Effects of foreign currency gains and losses

Back 1

Not reported on income statement , but affect owners equity because they are included as other comprehensive income

Front 2

Cash Conversion Cycle

Back 2

(365/receivables) + (365/inventory turns) - (365/payables)

Front 3

ROA

Back 3

When net income is positive and debt is present

Front 4

free Cash Flow to Firm

Back 4

CFO + interest expense net of tax - net capital expenditures

Front 5

Trading Securities

Back 5

Held with the intent to profit over the short term are classified as trading and changes in their market values are reflected in their balance sheet values and also reported on the income statement

Front 6

Converting LIFO to FIFO

Back 6

COGS LIFO - (ending LIFO reserve - beginning LIFO reserve)

Front 7

General Journal

Back 7

Listing of all the journal entries in order of their dates

Front 8

Firms with low P/E

Back 8

Value firms, will exclude growth firms who have a high expected earnings growth which leads to high P/E

Front 9

Firms with high Dividend Yield Stocks

Back 9

Likely includes disproportionately high number of financial services firms who typically have higher dividend payouts

Front 10

Disclosure under GAAP and IFRS for operating & financing leases

Back 10

Require minimum lease payments for each of the next five years and the sum of the minimum lease payments more than five years in the future

Front 11

Place where Material changes in the firms cost of debt capital

Back 11

Included in Management discussion and analysis section of financial statements

Front 12

How are Permanently impaired assets reported

Back 12

Reported as losses “above the line” and are included in income from continuing operations

Front 13

3-Part DuPont approach

Back 13

Net Profit Margin x Asset Turnover x leverage ratio

Front 14

Revenue Recognition Requirements

Back 14

Completion of earnings process

Reasonable assurance of payment

Front 15

Revenue Recognition Methods

Back 15

Percentage of completion

Completed contract method

Installment sales

Cost recovery method

Front 16

Converged Revenue Recognition Standards

Back 16

1. Identify contracts

2. Identity performance obligations

3. Determine transaction price

4. Allocate price to obligations

5. Recognize when (as) obligations are satisfied

Front 17

Unusual or Infrequent Items

Back 17

Gains/losses from disposal of business segment

Gains/losses from sale of assets or investments in subsidiaries

Provisions for environmental remediation

Impairments, write-offs, write-downs, and restructuring costs

Integration expenses associated with businesses recently acquired

Front 18

Discontinued Operations

Back 18

Must be a business-asset, Operations, investing, financing activities must be physically/operationally distinct from the rest of the firm. Income/losses are reported net of tax after income from continuing operations.

Front 19

Common-Size financial Statement analysis

Back 19

Expresses all balance sheet accounts as a percentage of total assets

Front 20

Inventory method best for inventory values and cost of sales

Back 20

FIFO provides better estimate for inventory values

LIFO provides better estimate for cost of sales

Front 21

Common size income statement

Back 21

Expresses all income statement items as a percentage of sales.

Front 22

Common-Size financial Statement analysis

Back 22

Expresses all balance sheet accounts as a percentage of total assets

Front 23

Characteristics of Financing Lease

Back 23

Working capital is lower because the current portion of the finance lease increases current liabilities.

Total asset turnover is lower because total assets are higher under a finance lease.

Report higher debt-to-equity ratios because liabilities increase

ROE is lower with a finance lease because the numerator NI is decreased more than equity from the greater expense in the early years.

Front 24

Common-Size Cash Flow Statement

Back 24

Expresses each line item as a percentage of total cash inflows (outflows) as a percentage of revenue

Front 25

Horizontal common-size financial statement analysis

Back 25

Expresses each line item relative to its value in a common base period

Front 26

Cash ratio

Back 26

Cash + marketable securities/current liabilities

Front 27

Defensive interval

Back 27

Cash + mkt. sec + receivables/daily cash expenditures

Front 28

Receivables Turnover

Back 28

Annual Sales/Annual Receivables

Front 29

Inventory turnover

Back 29

COGS/average inventory

Front 30

Payables turnover ratio

Back 30

Purchases/average trade payables

Front 31

Days of sales outstanding

Back 31

365/receivables turnover

Front 32

Days of inventory on hand

Back 32

365/inventory turnover

Front 33

Number of days of payables

Back 33

365/payables turnover ratio

Front 34

Cash Conversion Cycle

Back 34

(Days of inventory on hand)+(days of sales outstanding)-(number of days of payables)

Front 35

Total asset turnover

Back 35

Revenue/average total assets

Front 36

Fixed asset turnover

Back 36

Revenue/average fixed assets

Front 37

Working Capital Turnover

Back 37

Revenue/average working capital

Front 38

Gross Profit Margin

Back 38

Gross Profit/revenue

Front 39

Operating Profit Margin

Back 39

Operating profit/revenue = EBIT/net sales

Front 40

Return on assets

Back 40

EBIT/average total capital

Front 41

Debt to equity ratio

Back 41

Total debt/total equity

Front 42

Total debt-ratio

Back 42

Total debt/total assets

Front 43

Interest Coverage

Back 43

EBIT/interest

Front 44

Fixed charge coverage

Back 44

EBIT + lease payments/interest + lease payments

Front 45

Growth rate

Back 45

Retention rate x ROE

Front 46

Retention rate

Back 46

1-dividends declared/operating income after taxes

Front 47

Liquidity ratios indicate...

Back 47

Company’s ability to pay its short term liabilities

Front 48

Operating Performance Ratios

Back 48

Indicate how well management operates the business

Front 49

Traditional DuPont equation

Back 49

Return on equity = (net income/sales)(sales/assets)(assets/equity)

Or (net profit margin)(asset turnover)(equity multiplier)

Front 50

Extended DuPont formula

Back 50

(net income/EBT) x (EBT/EBIT) x (EBIT/revenue) x (revenue/avg. total asset turnover) x ( avg. total assets/avg. equity)

Or

Tax burden x interest burden x EBIT Margin x asset turnover x leverage

Front 51

Held-for-trading Marketable security

Back 51

Fair value on balance sheet; dividends, interest, realized and unrealized G/L recognized on income statement

Front 52

Available-for-sale Marketable Securities

Back 52

Fair value on balance sheet; dividends, interest, realized G/L recognized on income statement, unrealized G/L is other comprehensive income

Front 53

Held-to-maturity Marketable Securities

Back 53

Amortized cost on balance sheet; realized G/L recognized on income statement

Front 54

In period of rising prices and stable or increasing inventories, LIFO:

Back 54

Higher COGS

Lower gross profit

Lower inventory balances

Front 55

In period of rising prices and stable or increasing inventories, FIFO:

Back 55

Lower COGS

Higher gross profit

Higher inventory balances

Front 56

Basic EPS

Back 56

Does not consider the effects of any dilutive Securities in computation.

Net income-preferred dividends/wtd. Avg. no of common shares outstanding

Front 57

Diluted EPS

Back 57

(Net income - preferred div) + convertible preferred dividends + (convertible debt interest)(1-t)/(wtd avg shares) + (shares from conversion of conv. pref shares) + (shares conversion conv. debt) + (shares issuable from stock options)

Front 58

Effects of Capitalizing Long-Lives assets

Back 58

Lowe’s income variability and increases near-term profits. Increase assets, equity.

Expensing has the opposite effect

Front 59

Straight-line Depreciation

Back 59

Cost - residual value/useful life

Front 60

Double Declining balance

Back 60

(2/useful life)(cost-accum. depreciation)

Front 61

Units of production Depreciation

Back 61

(Cost - Salvage Value)/Useful life in units x output units

Front 62

Revaluation of Long-Lived Assets under GAAP

Back 62

Revaluation is not permitted

Front 63

Revaluation under IFRS

Back 63

Gain recognized in net income only to the extent it reverses previously recognized impairment for loss; further gains recognized in equity as a revaluation surplus. For investment property, all G/L from marking to fair value are recognized as income

Front 64

Deferred taxes assets are created

Back 64

When taxable income (on tax return) is more than pretax income (on financial statements) due to temporary differences, and the difference is likely to reverse.

Front 65

Deferred taxes are created

Back 65

When taxable income (on tax return) does NOT equal pretax income (on financial statements) due to temporary differences

Front 66

Deferred Tax liabilities

Back 66

Created when taxable income < pretax income. Treat DTL as equity if not expected to reverse

Front 67

Deferred Tax Assets

Back 67

Created when taxable income > pretax income. Must recognize valuation allowance if more likely than not DTA will not he realized.

Front 68

Premium Bond

Back 68

Coupon rate> market rate

Front 69

Discount bond

Back 69

Coupon < market rate at issuance

Front 70

Interest Expense

Back 70

Equals book value at the beginning of the year multiplied by the market rate of interest at the time the bonds were issued

Front 71

Capital Leases result in

Back 71

Higher: assets, liabilities, CFO, debt/equity.

Lower: net income (early years), CFF, current ratio, working capital, asset turnover, ROA, ROE

Total cash flow remains the same

Front 72

Unrealized Gains for Trading Securities

Back 72

Gain from bond in net income, which is then recorded in retained earnings

Front 73

Unrealized Gains on Available-for-Sale Securities are reported as

Back 73

Other comprehensive income for the period and are recorded in accumulated other comprehensive income within owners equity

Front 74

Unrealized Gains on Held-to-maturity securitirs

Back 74

Not reported on the financial statements

Front 75

Interim SEC Filings

Back 75

Update the major financial statements and footnotes but are not necessarily audited

Front 76

Basic EPS

Back 76

Share amount x months held/ 12 months

Does not consider dilutive shares

Front 77

Installment method

Back 77

Should be used when future cash collection cannot be reasonably estimated. Should use completed contract when the firm cannot estimate the outcome reliably

Front 78

Lower valued inventory effects on future periods

Back 78

Result in lower cost of sales and higher net income

Front 79

Effective Tax Rate

Back 79

Tax Expense/Pretax Income

Front 80

Valuing Land under US GAAP

Back 80

Unless impairment has been recognized, land is reported at historical cost and is not subject to depreciation. Increases in value are not reflected in balance sheet values

Front 81

Interest and dividends received under IFRS

Back 81

May be shown as either cash flow from operations or from investing

Front 82

Fundamental Qualitative Characteristics of financial statements under IASB

Back 82

Timeliness, comparability, verifiability and understandability that enhance relevance and faithful presentation