Financial Analysis
Financial Analysis
Financial Analysis
Kartei Details
| Karten | 288 |
|---|---|
| Sprache | English |
| Kategorie | Finanzen |
| Stufe | Universität |
| Erstellt / Aktualisiert | 06.01.2017 / 10.03.2017 |
| Weblink |
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Historical cost
def
cost at acquisition, including any cost of acquisition and preparation
Current cost
def
amount at which the asset could be replaced
Present value
def
discounted value of future cash flows which can be assigned to this asset
Ratios to measure the effectiveness of the companies credit policies
– Receivable turnover
– Average days’ sales uncollected
Receivable turnover: TO_Rec =
TO_Rec= Sales/Receivables
Average days’ sales uncollected: t_Rec =
365/(TO_Rec)
promissory note
def
obligation to pay a specific amount at a specific point in the future
Inventory
(valued at, includes)
Valued at the lower of cost or net realizable value (NRV)
includes all direct and indirect costs, e.g. cost to make the sale (NRV)
CoGS =
Inventory_t + Purchases - In_t+1
TO_inventory =
(GoGS) / (Inventory)
Average days' inventory or average inverntory processing period =
t_in = 365 / TO_in
Calculate the value of the ending inventory and cost of goods sold for the four flow assumptions
(Specific, WAC, FIFO, LIFO)
In_Beg: 5 (# 1-5) at $ 12
Purchase: 10 (# 6-15) at $ 15
Purchase: 5 (# 16-20) at $ 13
Sale: 13 (# 4-16)
- Specific: CoGS = 187; In_End = 88
- WAC: CoGS = 178,75; In_End = 96,25
- FIFO: CoGS = 180; In_End = 95
- LIFO: CoGS = 185; In_End = 90
Which flow assumptions yields the lowest cost of goods sold during increasing inventory and rising prices?
FIFo
What is the effect of an overstated inventory on cost of goods sold?
CoGS will be understated, hence taxes, net income and working capital will increase and cash flow will decrease.
Assuming ending inverntory is accounted properly in the subsequent year, CoGS will be overstated and the inventory error is washed out
LIFO to FIFO
(explanation, calculation)
US GAAP requires all companies using LIFO to report a LIFO reserve (ResLIFO)
In_FIFO = In_LIFO + Res_LIFO
FIFO to LIFO
(explanation, calculation)
no precise calculation
industry inflation ratio : CoGS_LIFO = CoGS_FIFO + (In_0,FIFO + i)
average cost to LIFO CoGS_LIFO = CoGS_av + (1/2)*(In_0,av * i)
Usage of FIFO / LIFO
LIFO should be used to examine profitability or cost ratios, whereas FIFO is used for assets and equity ratios
Liabilities / Current Liabilities
explanation
Liabilities are probable future payments and current liabilities are expected to be due within one year
What are the impacts of LIFO versus FIFO inventory accounting on profitability, liquidity, activity, and solvency ratios (assuming rising prices and stable quantity)?
Profitability : Gross margin or net profitability are lower under LIFO
Liquidity : Inventory value hence current ratio is lower under LIFO
Activity : Inventory turnover is higher when higher LIFO prices are used
Solvency : Equity is adjusted by adding LIFO reserve,debt - to - equity is lower
All of the following are current assets except
When a company pays its rent in advance, its balance sheet will reflect a reduction in
Depreciation
(Explanation, Methods)
process of allocating the cost of an asset over time and is subject to management’s strategy
- Straight-line method
- Units-of-production method
- Double-declining-balance
- Sum-of-the-years digit method
Depreciation
Straight-line method
Depreciation
Units of production method
Depreciation
Double-declining-balance
Depreciation
Sum-of-the-years digit method
Intangible assets
def, example
amounts paid by a company to acquire certain rights that are not represented by the possession of physical assets
(patents, accounting goodwill)
Financial Assets
examples
investments in stocks, bonds, and similar instruments
Financial liabilities
bonds, notes payable, and similar instruments
Equity
Explanation, Components
residual interest in the assets of an entity after deducting its liabilities
- common stock and preferred stock
- Minority interest
- Retained earnings
- Treasury stock
- Accumulated comprehensive income
interest coverage ratio
explanation, formula
ability of the company to satisfy the debt commitments
Bonds usually have the following features
- Principal value
- Interest Rate
- Security
- Ownership
- Term to maturity
Assign the following statements to one industry based on size-adjusted data (common-size)
Common-size statements (balance sheet or income statement) are standardized by dividing line items
An acquisition of own shares held in treasury is recorded as a reduction in
To measure the efficiency of a companies credit policies an analyst should calculate
Calculate the book value after 3 years (600k units) of a long-term asset acquired for USD 1m, a useful life of 5 years (1m units), a salvage value of USD 10k comparing all four depreciation methods
Components of the Income Statement
- top line --> reports revenue as the amounts charged for delivery of
goods and services from ordinary business activity - Expenses --> grouped by nature or by function
- Gross profit (or gross margin) --> amount available after subtracting CoGS
- Operating profit (or operating income) --> reflects a company’s profits on its usual
business activities before deducting tax - bottom line --> net income
recognition of revenues needs the following conditions to be satisfied (IASB)
– Significant risks and rewards of the ownership are transferred to the buyer
– Neither continuing managerial involvement nor effective control are retained
– The amount of revenue can be measured easily
– It is probable that the economic benefits will flow to the seller
– The cost incurred can be measured reliable
To which extend shall the following business
transactions be recognized on the income statement?
a) Delivered good to a retail store to be sold on consignment
b) Subscription fee received up front
c) 3-year motorway-building contract
d) Online flight ticket reseller, who only pays for tickets sold to
customers
e) Sale with a 30% down payment and doubt about
completion
a) No recognition
b) Unearned revenues are not reported
c) Percantage - of - completion
d) Only net revenues recognized
e) Installment sales or Cost recovery
