Flashcards by holden_cowfield, updated more than 1 year ago
Created by holden_cowfield over 7 years ago


Financial Reporting Flashcards

Resource summary

Question Answer
Net profit margin Net income / Revenue
Return on Assets (ROA) Operating income / Average total assets (a higher result is better)
Return on Equity (ROE) Net income / Average shareholders' equity
Vertical Analysis Common-size analysis using only one reporting period
Horizontal Analysis Common-size analysis comparing multiple time periods or multiple companies
Activity Ratios Measures how efficiently a company performs day-to-day tasks (collect a/r, manage inv)
Liquidity Ratios Measures a company's ability to meet its short-term obligations
Solvency Ratios Measures a company's ability to meet long-term obligations. Subsets aka "leverage" & "L-T debt" ratios.
Profitability Ratios Measures a company's ability to generate profits from its resources (assets)
Valuation Ratios Measures the quality of an asset or flow associated with ownership of a specified claim
Inventory Turnover (Activity Ratio) Cost of sales or cost of goods sold / Average inventory
Days of Inventory on Hand (DOH) (Activity Ratio) Number of days in period / Inventory turnover
Receivables Turnover (Activity Ratio) Revenue / Average receivables
Days of sales outstanding (DSO) (Activity Ratios) Number of days in period / Receivables turnover
Payables Turnover (Activity Ratios) Purchases / Average trade payables
Number of days of payables (Activity Ratios) Number of days in period / Payables turnover
Working capital turnover (Activity Ratios) Revenue / Average working capital
Fixed asset turnover (Activity Ratios) Revenue / Average net fixed assets
Total asset turnover (Activity Ratios) Revenue / Average total assets
Defensive Interval Ratio Measures how long a company can pay its daily cash expenditures using only existing liquid assets
Cash Conversion Cycle A metric (not ratio) that measures the length of time required for a co to go from $ paid to $ received
Current Ratio Current assets / Current liabilities (higher is better)
Quick Ratio Cash + Short-term marketable investments + Receivables / Current liabilities (higher is better)
Cash Ratio Cash + Short-term marketable investments / Current liabilities
Defensive interval ratio Cash + Short-term marketable investments + Receivables / Daily cash expenditures (higher = greater liquidity)
Cash Conversion Cycle (net operating cycle) DOH + DSO - # days of payables
Cash Conversion Cycle Steps 1) Buy inv on credit, 2) Sell inv on credit, 3) Pay to settle AP, 4) Collect $ to settle AR
Cash Conversion Cycle A shorter cycle = greater liquidity (neg # can be ok, but big neg # can mean trouble)
Operating Leverage Results from the use of fixed costs in conducting the company's business
Financial Leverage The use of debt to finance a company
Two types of solvency ratios 1) Debt ratios, 2) Coverage ratios
Debt ratios (a solvency ratio) Focus on the balance sheet and measure the amount of debt capital relative to equity capital
Coverage ratios (a solvency ratio) Focus on the income statement and measure the ability of a co to cover its debt payments
Debt-to-assets Ratio Total debt / Total assets (higher ratio = more risk)
Debt-to-capital Ratio Total debt / total debt + total shareholders' equity (higher ratio = more risk)
Debt-to-equity Ratio Total debt / Total shareholders' equity (higher ratio = less solvent)
Financial Leverage Ratio Average total assets / Average total equity (higher = more levered)
Interest Coverage EBIT / Interest payments (higher = more solvent)
Fixed charge coverage EBIT + Lease payments / Interest payments + Lease (higher = more solvent)
Fixed Charge Coverage Use Used as an indication of the quality of preferred dividend (higher = div more secure)
Gross profit margin Gross profit / Revenue
Operating profit margin Operating income / Revenue
Pretax margin EBT / Revenue
Net profit margin Net income / Revenue
Operating ROA Operating income / Avg total assets
ROA Net income / Average total assets
Return on total capital EBIT / Short- and long-term debt and equity
ROE Net income / Average total equity
Return on common equity Net income - pref div / Average common equity
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