Financials

Weight on the exam = 20%

Number of formulas = 64

Formulas
Fundamental accounting equation
Expanded accounting equation
Income statement equation
Basic EPS
Diluted EPS
Dilution test
Treasury stock method
Receivables turnover
Days of sales outstanding
Inventory turnover
Days of inventories on hand
Payables turnover
Number of days of payables
Total assets turnover
Fixed assets turnover
Working capital turnover
Current ratio
Quick ratio
Cash ratio
Defensive interval
Cash convertion cycle
Debt-to-equity
Debt-to-capital
Debt-to-assets
Financial leverage
Interest coverage
Fixed charge coverage
Net profit margin
Gross profit margin
Operating profit margin
Pretax margin
Return on assets
Operating return on assets
Return on total capital
Return on equity
Return on common equity
Cash flow-to-revenue
Cash return-on-assets
Cash return-on-equity
Cash flow per share
Debt coverage
Interest coverage
Reinvestment
Debt payment
Dividend payment
Investing and financing
Free cash flow to the firm
Free cash flow to equity
DuPont equition
Extended DuPont equition
CV of sales
CV of operating income
CV of net income
Ending inventory
Current cost of inventory (FIFO)
Cost of goods sold (FIFO)
Straight-line depreciation
Double-declining balance depreciation
Average age in years
Average age as a percentage
Average depreciable life
Remaining useful life
Income tax expense
Interest expense

Fundamental accounting equation
Fundamental accounting equation is a main equation of the balance sheet

A - assets

Liab - liabilities

Eq - equity

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Expanded accounting equation
Fundamental accounting equation is a main equation of the balance sheet. Expanded equation shows the components of equity.

A - assets

Liab - liabilities

CC - contributed capital

RE_{b} - retained earnings at the beginning of the period

Rev - revenue for the period

Exp - expenses for the period

Div - dividends for the period

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Income statement equation
Income statement equation is a main equation of the income statement

NI - net income

Rev - revenue

Exp - expenditures

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Basic EPS
Basic EPS (earnings per share) show investor how much of the company's profit belongs to each share of stock. It is widely used for P/E valuation ratio calculation. Basic EPS does not take into account the effect of dilutive securities.

EPS_{b} - Basic EPS (earnings per share)

NI - net income

Div_{p} - preferred stocks dividends

ComSh_{wa} - weighted average number of common shares outstanding

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Diluted EPS
Diluted EPS considers the effect of all potentially dilutive securities. Therefore we add all expenses associated with delutive securities in numeriator and add all potential common shares created from conversion of delutive securities in denominator.

EPS_{d} - Duiluted EPS (earnings per share)

NI - net income

Div_{p} - preferred stocks dividends

Div_{cp} - convertible preferred stocks' dividends

I_{cd} - interest expense on convertible debt

t - profit tax rate

ComSh_{wa} - weighted average number of common shares outstanding

Sh_{conv pref} - number of shares created after the convertion of convertible preferred stocks

Sh_{conv debt} - number of shares created after the convertion of convertible debt

Sh_{opt} - number of shares issuable from stock options

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Dilution test
Delution test is used to determine whether the security is potentially dilutive. If calculated test result is less than basic EPS that the security is dilutive.

Test - the value of the test which should be compared with Basic EPS

Exp_{dil sec} - expenses associated with dilutive security (for example: interest on convertible debt, preferred stocks dividends on convertible preferred stocks

ComSh_{conv} - number of common shares created from the convertion of potentially dilutive security

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Treasury stock method
Treasury stock method assumes that the proceeds that a company receives from an option exercise are used to repurchase common shares in the market at the average price over the reporting period.

Sh_{n} - new shares

P_{av} - average market price

P_{ex} - exercise price

Sh_{opt} - number of shares covered by options or warrants

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Receivables turnover

RecTurn - receivables turnover

Sales - annual sales

Rec_{av} - average receivables

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Days of sales outstanding
Days of sales outstanding or number of days of receivables

Days_{sal} - days of sales outstanding

365 - number of days in a year

RecTurn - receivables turnover

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Inventories turnover

InvTurn - inventories turnover

COGS - cost of goods sold

Inv_{av} - average inventory

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Days of inventory on hand
Days of inventory on hand or number of days of inventory

Days_{inv} - days of inventory on hand

365 - number of days in a year

InvTurn - inventory turnover

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Payables turnover

PayTurn - payables turnover

Purch - purchases

Pay_{av} - average trade payables

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Number of days of payables

Days_{pay} - number of days of payables

365 - number of days in a year

PayTurn - payables turnover

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Total assets turnover

TATurn - total assets turnover

Rev - revenue

TA_{av} - average total assets

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Fixed assets turnover

FATurn - fixed assets turnover

Rev - revenue

NetFA_{av} - average net fixed assets

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Working capital turnover

WCTurn - working capital turnover

Rev - revenue

WC_{av} - average working capital

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Current ratio
Current ratio - a measure of a company's ability to satisfy its current liabilities with its current assets.

CR - current ratio

CA - current assets

CL - current liabilities

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Quick ratio
Quick ratio - a measure of a company's ability to satisfy current liabilities with its most liquid assets

QR - quick ratio

CA - current assets

Inv - inventories

CL - current liabilities

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Cash ratio
Cash ratio - a measure of a company's ability to satisfy current liabilities with the cash and cash equivalents

Cash - cash on the balance

CashEq - cash equivalents

InvFunds - invested funds

CL - current liabilities

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Defensive interval
Defensive interval - a liquidity ratio that estimates the number of days that an entity could meet cash needs from liquid assets.

Cash - cash on the balance

MktSec - marketable securities

Rec - receivables

Exp_{ad} - average daily expenditures

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Cash conversion cycle
Cash conversion cycle - a financial metric that measures the length of time required for a company to convert cash invested in its operations to cash received as a result of its operations.

CCC - cash conversion cycle

Days_{sal} days sales outstanding

Days_{inv} days of inventory on hand

Days_{pay} number of days of payable

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Debt-to-equity
Debt-to-equity ratio compares the proportions of a company's assets that are financed through the use of debt relative to equity.

DtoE - debt-to-equity

TotDebt - total debt

TotEq - total equity

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Debt-to-capital
Debt-to-capital ratio is a measurement of a company's financial leverage. The debt-to-capital ratio gives users an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength.

DtoC - debt-to-capital

TotDebt - total debt

TotEq - total equity

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Debt-to-assets
Debt-to-assets ratio measures the proportion of assets that is financed with debt

DtoAs - debt-to-assets

TotDebt - total debt

TotAs - total assets

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Financial leverage
Financial leverage ratio measures the extent to which assets are financed with debt relative to equity

TotAs_{av} - average total assets

TotEq_{av} - average total equity

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Interest coverage
Interest coverage ratio is used to determine how easily a company can pay interest on outstanding debt.

EBIT - earnings before interest and taxes

IntPay - interest payments

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Fixed charge coverage
Fixed charge coverage ratio measures the number of times interest and lease payments are covered by operating income.

FCC - fixed charge coverage

EBIT - earnings before interest and taxes

LP - lease payments

IntPay - interest payments

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Net profit margin
Net profit margin indicates how much of each dollar of revenues is left after all costs and expenses.

NI - net income

Rev - revenue

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Gross profit margin
Gross profit margin indicates how much of every dollar of revenues is left after the cost of goods sold

GP - gross profit

Rev - revenue

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Operating profit margin
Operating profit margin indicates how much of each dollar of revenues is left after both cost of goods sold and operating expenses are considered.

EBIT - earnings before interest and tax (operating income)

Rev - revenue

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Pretax margin
Pretax margin indicates how much of each dollar of revenues is left after cost of goods sold, operating expenses and non-operating expenses are considered.

EBT - earnings before tax

Rev - revenue

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Return on assets
Return on assets indicates the company's net profit generated per dollar invested in total assets.

ROA - return on assets

NI - net income

TotAs_{av} - average total assets

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Operating return on assets
Operating return on assets indicates the company's operating income generated per dollar invested in total assets.

OROA - operating return on assets

EBIT - earnings before interest and tax (operating income)

TotAs_{av} - average total assets

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Return on total capital
Return on total capital indicates the return to the investment made by both creditors and shareholders.

ROTC - return on total capital

EBIT - earnings before interest and tax (operating income)

TotCap_{av} - average total capital (average interest bearing debt + average total equity)

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Return on equity
Return on equity indicates the return generated per dollar of shareholders' investment in the company.

ROE - return on equity

NI - net income

TotEq_{av} - average total equity

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Return on common equity
Return on common equity is equal to the return on equity ratio when no preferred equity is outstanding.

ROE_{com} - return on common equity

NI - net income

Div_{pref} - preferred dividends

ComEq_{av} - average common equity

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Cash flow-to-revenue
Cash flow-to-revenue ratio measures the amount of cash generated from operations per one dollar of net revenue.

CFtoRev - cash flow-to-revenue

CFO - cash flow from operations

Rev_{net} - net revenue is a revenue after adjustments (e.g., for estimated returns of for amounts unlikely to be collected)

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Cash return-on-assets
Cash return on assets indicates the company's operating cash flow generated per dollar invested in total assets.

CashROA - cash return-on-assets

CFO - cash flow from operations

TotAs_{av} - average total assets

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Cash return-on-equity
Cash return-on-equity indicates operating cash flow generated per dollar of shareholders' investment in the company.

CashROE - cash return-on-equity

CFO - cash flow from operations

TotEq_{av} - average total equity

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Cash flow per share
Cash flow per share is a measure of a firm's financial strength.

CFO - cash flow from operations

Div_{pref} - preferred dividends

ComSh_{wa} - weighted average number of common shares

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Debt coverage
Debt coverage ratio refers to the amount of cash flow available to meet interest and principle payments on debt

DebtCov - debt coverage

CFO - cash flow from operations

TotDebt - total debt

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Interest coverage
Interest coverage ratio determines how easily a company can pay interest on outstanding debt.

IntCov - interest coverage

CFO - cash flow from operations

Int_{paid} - interest paid

Taxes_{paid} - taxes paid

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Reinvestment
Reinvestment measures how easily a company can finance the purchase of long-term assets with its operating cash flow

CFO - cash flow from operations

CashPaid_{LTA} - cash paid for long-term assets

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Debt payment
Debt payment ratio measures how easily a company can finance the repayment of long-term debt with its operating cash flow

DebtPay - debt payment

CFO - cash flow from operations

CashRep_{LTD} - cash long-term debt repayment

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Dividend payment
Dividend payment ratio measures how easily a company can pay dividends with its operating cash flow

DivPay - dividend payment

CFO - cash flow from operations

Div_{paid} - dividends paid

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Investing and financing
Investing and financing ratio measures how easily a company can finance its investing and financing activities with its operating cash flow

Inv and Fin - investing and financing

CFO - cash flow from operations

CashOut_{inv and fin} - cash outflows from investing and financing activities

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Free cash flow to the firm
Free cash flow to the firm (FCFF) is the cash flow available to the company's suppliers of capital after all operating expenses (including taxes) have been paid and necessary investments in working capital and fixed capital have been made.

or

FCFF - free cash flow to the firm

NCC - noncash charges

CFO - cash flow from operations

IntExp - interest expense

t - tax rate

CapInv_{fix} - fixed capital investment

WCInv - working capital investment

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Free cash flow to equity
Free cash flow to equity (FCFE) is the cash flow available to holders of the company's common equity after all operating expenses, interest and principal payments have been paid and necessary investments in working capital and fixed capital have been made.

FCFE - free cash flow to equity

CFO - cash flow from operations

CapInv_{fix} - fixed capital investment

Borrow_{net} - net borrowing

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DuPont equation
DuPont equation analyses return on equity (ROE) via decomposion of other financial ratios.

ROE - return on equity

NI - net income

Rev - revenue or sales

TotAs - total assets

TotEq - total equity

Net income/Revenue = net profit margin

Revenue/Total assets = Assets turnover

Total assets/Total equity = leverage ratio

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Extended DuPont equation
DuPont equation analyses return on equity (ROE) via decomposion of other financial ratios.

ROE - return on equity

NI - net income

EBT - earnings before tax

EBIT - earnings before interest and tax

Rev - revenue or sales

TotAs - total assets

TotEq - total equity

Net income/EBT = Tax burden

EBT/EBIT = Interest burden

EBIT/Revenue = Operating profit margin

Revenue/Total assets = Assets turnover

Total assets/Total equity = leverage ratio

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CV of sales

CV_{sales} - coefficient of variation of sales

σ_{sales} - standard deviation of sales

Sales_{mean} - mean sales

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CV of operating income

CV_{OpInc} - coefficient of variation of operating income

σ_{OpInc} - standard deviation of operating income

OpInc_{mean} - mean operating income

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CV of net income

CV_{NI} - coefficient of variation of net income

σ_{NI} - standard deviation of net income

NI_{mean} - mean net income

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Ending inventory

Inv_{end} - ending inventory

Inv_{beg} - beginning inventory

Purch - purchases

COGS - cost of goods sold

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Current cost of inventory (FIFO)

CCI(FIFO) - current cost of inventory (FIFO)

LIFO_{inv} - LIFO inventory

LIFO_{res} - LIFO reserve

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Current cost of inventory (FIFO)

COGS_{FIFO} - cost of goods sold (FIFO)

COGS_{LIFO} - cost of goods sold (LIFO)

endLIFO_{res} - ending LIFO reserve

begLIFO_{res} - beginning LIFO reserve

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Straight-line depreciation
Straight-line depreciation is the simplest and most-often-used technique, in which the company estimates the salvage value of the asset at the end of the period during which it will be used to generate revenues (useful life) and will expense a portion of original cost in equal increments over that period.

SLD - straight-line depreciation

Cost - cost of fixed asset

SV - salvage value (or residual value)

Useful life - useful life of asset in years

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Double-declining balance depreciation
Double-declining balance depreciation is a method of accelerated depreciation permitting twice the rate of annual depreciation as the straight-line method.

DDB - Double-declining balance depreciation

Cost - cost of fixed asset

AccDepr - accumulated depreciation

Useful life - useful life of asset in years

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Average age in years
Average age of an asset in years is determined by dividing accumulated depreciation on annual depreciation expense.

Age_{av} - average age in years

AccDepr - accumulated depreciation

DeprExp_{an} - annual depreciation expense

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Average age as a persentage
Average age as a percentage means as a persentage of total estimated useful life of an asset.

Age_{av} - average age as a percentage

AccDepr - accumulated depreciation

EndInv_{gross} - ending gross investment

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Average depreciable life
Average depreciable life is an average useful life of an asset.

DeprLife_{av} - average depreciable life

EndInv_{gross} - ending gross investment

DeprExp_{an} - annual depreciation expense

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Remaining useful life
Useful life is a period during which an asset or property is expected to be usable for the purpose it was acquired.

RUL - remaining useful life

EndInv_{net} - ending net investment

DeprExp_{an} - annual depreciation expense

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Income tax expense

IncTaxExp - income tax expense

Tax_{pay} - taxes payable

ΔDTL - change in deferred tax liabilities

ΔDTA - change in deferred tax assets

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Interest expense

IntExp - interest expense

r_{m} - market rate at issue

LiabVal_{beg} - balance sheet value of the liability at the beginning of the period

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