Flashcards
Accounting
Cards in this deck (54)
- 1What is NOPM?Net Operating Profit Margin.
= NOPAT / Sales - 2What is OCI?Other Comprehensive Income.
= the change in shareholders equity from 'other' transactions or not usual stock transactions. Typical OCI components are foreign currency gains and unrealized gains on securities and derivatives. - 3* First and foremost, 'make a profit' ans then become really efficient and making that profit. There's no point in being really efficient if you are going to make a loss...General Note.
- 4What is EBIT?= Earnings Before Interest and Tax
- 5What is EBITDA?= Earnings Before Interest, Tax, Depreciation & Amortization.
- 6What is Amortization?= Similar to depreciation and usually refers to the periodic writing off of an intangible asset
- 7What is WACC?= Weighted Average Cost of Capital
= An average of the after tax of long term borrowings and the cost of equity - 8What is NNO?= Net Non Operating Obligations
= NNO - NOA - 9What is NOPAT?= Net Operating Profit After Tax
- 10* Thinking about 'returns' is more meaningful than thinking about the straight $$ profit.eg. If I made $1m, that's great if I only had $5m of NOA to generate that $1m profit (=20% return) but that's crap if I had $100m of NOA to generate $1m as this would be a 1% return
- 11A = L + EAssets = Liabilities + Equity
- 12What is NOPM?= Net Operating Profit Margin
= NOPAT / Sales
NOPM reveals how much operating profit the company earns from each sales dollar - 13What is NOA?= Net Operating Assets
Current and long term operating assets LESS current and long term operating liabilities - 14What are the '4 Statements?'Balance Sheet
Statement of Cashflows
Income Statement
Statement of Shareholders Equity - 15What are the statements at the: Beginning of the year During the year End of the yearBeginning = Balance Sheet
During = Statement of CF's
Income Statement
Statement of Shareholders Equity
End = Balance Sheet - 16What is ROE?= Return on Equity
= Net Income / Average Shareholders Equity
:The ultimate measure of performance from a shareholders point of view - 17What is ETR?= Effective Tax Rate
- 18What is EVA?= Economic Value Added
- 19What is STR?= Statutory Tax Rate
- 20What is ROE?= Return on Equity
The ultimate measure of performance from the shareholders perspective.
= Net Income / Average Equity - 21What is RNOA?= Return on Net Operating Assets
NOPAT / Average Net Operating Assets - 22What is Liquidity?= How much cash the company has, how much is expected and how much can be raised on short notice.
- 23What is Solvency?Solvency refers to a company's ability to meet its debt obligations.
Solvency is crucial since an insolvent company is a failed company. - 24What does the Income Statement profile?= a summary of economic events during a period of time, showing the revenues generated by operating activities, the expenses incurred in generating those revenues and any gains or losses attributed to the period
- 25What is RNOA?= Return on Net Operating Assets
NOPAT / Average NOA - 26What is NNE?Net Nonoperating Expense
NOPAT - Net Income
NNE consists of non-operating expenses and revenues, net of tax, as well as any non-controlling interest reported on the income statement - 27What are the 4 things that affect NOPM?NOPM is affected by:
. The level of gross profit
. The level of operating expense
. The level of competition
. And the company's willingness and ability to control costs - 28* NOPM = NOPAT / Revenues = $3, 397 / $67,390 = 5.04%This means that for each dollar of sales at Target the company earns just over .05c profit after all operating expenses and tax
As a reference, the median NOPM for all publicly traded firms is about 0.6c - 29What is NOAT?= Net Operating Asset Turnover
It measures the productivity of the company's net operating assets - 30What does NOAT reveal?NOAT reveals the level of sales the company realizes form each dollar invested in net operating assets
All things being equal, a higher NOAT is preferable - 31NOAT = Revenues / Average NOA = $67,390 / ($29,501 + $29,961) / 2 = 2.27That result means that for each dollar of net operating assets, the company realizes $2.27 in sales.
As a reference, the median for all publicly traded companies is $1.40 - 32The Effect of Financial Leverage on ROE: Assume a company has $1,000 in average assets in which it earns 20% ROA (It finances those assets entirely with equity investment - no debt) Next assume this company borrows $500 at 7% interestWe see that this company has increased it's profit to $265 (up from $200) with the addition of debt, and its ROE is now 26.5% ($265 / $1000)
The reason for the increased ROE is that the company borrowed $500 at 7% and invested those funds in assets earning 20%
The difference of 13% accrues to the shareholders - 33What is the 'Spread'?= RNOA - NNEP
= Return on Net Operating Activities less Net non-operating expense percentage - 34Define current assets.Current assets are those assets that a company expects to covert into cash within the next operating cycle, which is typically a year.
- 35Define 'current liabilities':Current liabilities are those liabilities that come due with the next year.
- 36Define the 'current ratio':= Current assets / Current liabilities
Also known as net working capital or simply working capital... - 37What is the 'Quick Ratio'?The quick ratio focuses on 'quick assets'.
Quick assets include cash, marketable securities and accounts receivable.
= Cash + marketable securities + accounts receivable / Current liabilities - 38Learning Objectives Class 2:. Distinguish between operating and non operating activities
. Compute RNOA
. Dis-aggregate RNOA into components of profitability and asset turnover
. Compute ROE
. Demonstrate how effective use of debt (leverage) can increase ROE
. Compute and interpret measures of liquidity and solvency
. - 39* A manager should only be expected to get a return on 'Operating Assets'...eg. He cant be accountable for the Waiheke Island back asset that is sitting on the books...
- 40* 'Interest' is a cost of financing the business not operating the business...* On average you should hold 2% of your business revenue in cash...
- 41Define 'Working Capital':= the difference between current assets and current liabilities
Or Current assets - Current liabilities - 42What does The Statement of Changes in Shareholders Equity report?Also called The Statement of Owners Equity
It reports on changes in the accounts that make up equity
- Contributed Capital
- Earned Capital ie. Retained Earnings
- Other Reserves ie. OCI - 43What does The Statement of Cash-flows report?Reports on cash flows for operating, investing and financing activities over a period of time
- 44What are the 'Financial Statement Linkages':. The IS & BS are linked via Retained Earnings
. The SSE & BS are linked via Retained Earnings, Contributed Capital and other equity balances
. The SCF & IS are linked by Net Income - 45Describe how the 4 Financial Statements link to each other...
- 46* Business Activities Image:
- 47* When you sell something it activates 2x transactionsGeneral
- 48What is an example of an Operating Liability?The Air NZ seat example - you pay now for a seat / flight at some point on the future and it sits as an Operating Liability for Air NZ .
- 49Accounts Payable = Creditors (AP = C)Accounts Receivable = Debtors
(AR = D) - 50What is the link between the Income Statement and the Balance Sheet?= Retained Earnings.
- 51What is the link between the Statement of Shareholders Equity and The Balance Sheet?= Retained Earnings, Contributed Capital and Other Equity Balances.
- 52What is the link between The Statement of Cashflows and the Income Statement?= Net Income is a component of Operating Cash Flow.
- 53The Income Statement links to the Balance Sheet...The Statement of Shareholders Equity links to The Balance Sheet...
- 54And The Statement of Cashflows links to the Income Statement...
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- Flashcards on Accounting , created by simonwelwright on 26/04/2015.
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