Tekst Financial Analysis

Question

What do ratio analysis assess?

Answer 1

Ratio analysis involves assessing how various line items in a firm's financial statements relate to one another.

Answer 2

Cash flow analysis allows the analyst to examine the firm's liquidity, and how the firm is managing its operating investment, and financing cash flows.

Answer 3

1. operating management

2. investment management

3. financing strategy

4. dividend policies

Answer 4

1. How profitably it employs it assets

2. How big the firm's asset base is relative to shareholders' investment

Answer 5

Financial leverage indicates how many euro of assets the firm is able to deploy for each euro invested by its shareholders.

Answer 6

ROA =

Net profit x Sales

Sales Assets

Answer 7

The profit margin ratio indicates how much the company is able to keep as profits for each euro of sales its makes.

Answer 8

Very liquid securities that can be converted into cash quickly at a reasonable price. Marketable securities are very liquid as they tend to have maturities of less than one year. Furthermore, the rate at which these securities can be bought or sold has little effect on their prices. Examples of marketable securities include commercial paper, banker's acceptances, Treasury bills and other money market instruments. A marketable security is a near-cash (liquid) asset and is recorded at acquisition cost (purchase price plus incidentals, commissions, and taxes) or market value (whichever is lower) in the account books under current assets.

Answer 9

Operating ROA is a measure of how profitably a company is able to deploy its operating assets to generate operating profits.

Answer 10

NOPAT margin is a measure of how profitable a company's sales are from an operating perspective.

Answer 11

Operating asset turnover measures the extent to which a company is able to use its operating assets to generate sales.

Answer 12

price premium that a firm's products or services command in the marketplace. The price premium is influenced by the degree of competition and the extent to which its products are unique.
efficiency of the firm's procurement and production process.

Answer 13

Expenses are disclosed according to their nature such as depreciation, transports costs, rent expense, wages and salaries etc.

Answer 14

working capital management
management of non current assets

Answer 15

(Current assets - cash and marketable securities) minus (current liabilities - current debt and notes payable)

Answer 16

Operating working capital turnover indicates how many euros of sales a firm is able to generate for each euro invested in its operating working capital.

Answer 17

Purchases or Cost of sales or Cost of materials

Trade payables Trade payables Trade payables

Answer 18

Net property, plan and equipment (PP&E), intangible assets such as goodwill, and other assets.

Answer 19

Net non-current assets as a percent of sales.

Net non-current assets turnover =

Sales

Net non-current assets

Answer 20

The ratio of PP&E to sales or by the PP&E turnover ratio.

PP&E turnover ratio =

Sales

Net property, plans and equipment

Answer 21

Minority investments that are accounted for using the equity method reduce net operating asset turnover because equity income from these unconsolidated subsidiaries is directly included in investment income.

Answer 22

Financial leverage increases a firm's ROE as long as the cost of the liabilities is less than the return from investing these funds. While financial leverage can potentially benefit a firm's shareholders, it can also increase their risk. Unlike equity, liabilities have predefined payment terms, and the firm faces risk of financial distress if it fails to meet these commitments.

Answer 23

Current Ratio, Quick Ratio, Cash Ratio and Operating cash flow ratio

Answer 24

If a firm's operating cash flows are highly volatile and its capital expenditure needs are unpredictable, it may have to rely primarily on equity financing.

Answer 25

Interest bearing liabilities - cash and marketable securities

Interest bearing liabilities - cash and marketable securities + Shareholders' equity

Answer 26

The ratio provides an indication of how many euros of debt financing the firm is using for each euro invested by its shareholders.

Answer 27

The ease with which a firm can meet its interest payments is an indication of the degree of risk with its debt policy. The interest coverage rate provides a measure of this construct.

Answer 28

A coverage ratio of one implies that the firm is barely covering its interest expense though its operating activities, which is a very risky situation. The larger the coverage ratio, the greater the cushion the firm has to meet interest obligations.

Answer 29

ROE x (1-Dividend payout ratio)

Answer 30

Sustainable growth rate is he rate at which a firm an grow while keeping its profitability and financial policies unchanged.The sustainable growth rate provides a bench mark against which a firm's growth can be evaluated. If the firm intends to grow at a higher rate than its sustainable growth rate, one could assess which of the ratios are likely to change in the process.

Answer 31

cash flow from operations - cash generated by the firm from the sale of goods and services after paying for the cost of inputs and operations.
cash flow related to investments - shows the cash paid for capital expenditures, inter corporate investments, acquisitions and cash received from the sales of non current assets.
cash flow related to financing activities - cash raised from (or paid to) the firm's shareholders and debt holders.

Answer 32

Working capital from operations

- Increase (+ decrease) in trade receivables

- Increase (+ decrease) in inventories

- Increase (+ decrease) in other current assets excluding cash and cash equivalents

+ Increase (- decrease) in trade payables

+ Increase (- decrease) in other current liabilities excl. debt

Answer 33

after-tax net interest expenses because this is a financing item that will be considered later
non-operating gains or losses typically arising out of asset disposals or asset write-offs because these items are investment related and will be considered later
non-current operating accruals such as depreciation and deferred taxes because these are non cash operating charges

Answer 34

their growth strategy, industry characteristics, and credit policies.

Tekst Financial Analysis

34 important questions on Tekst Financial Analysis

What do ratio analysis assess?

What does cash flow analysis allow the analyst to examine?

What are the four levers managers can use to achieve their growth and profit targets?

By which two factors is a company's ROE affected?

What does financial leverage indicates?

How can the Return of Assets (ROA) itself be decomposed as a product of two factors?

What does the profit margin (Return On Sales) indicates?

What are marketable securities?

What does Operating ROA measure?

What is the NOPAT margin a measure of?

What does the Operating asset turnover measure?

By which two factors is the gross margin influenced?

Name expenses by nature of expense

What are the two primary areas of asset management?

What is the definition of operating working capital?

What does the operating working capital turnover indicates?

Trade payable turnover

Non-current assets generally consist of

The efficiency with which a firm uses its net non=current assets is measured by two ratios

Property, plant and equipment (PP&E) is the most important non-current asset in a firm's balance sheet. The efficiency with thick a firms PP&E is used is measured by

How do minority investments following the equity method impact net operating asset turnover?

How can financial leverage increases a firm's ROE?

Which ratios attempt to measure the firm's ability to repay its current liabilities?

When does a firm rely primarily on equity financing?

Net debt to net capital ratio

What does debt to equity ratio provide on explanation?

What is an indication of the degree of risk associated with its debt policy?

What does the coverage ratio tell a firm?

Analysts often use the concept of sustainable growth as a way to evaluate a firm's ratios in a comprehensive manner. A firm's sustainable growth rate is defined as?

What does the sustainable growth rate tell a firm?

In the reported cash flow statements firms classify their cash flows into three categories.

Cash from operations an be calculated as follows

To compute the cash flow starting with a firm's net profit, an analyst adds back three types of items

In interpreting firms' cash flow from operations after working capital, it is important to keep in mind

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