Analysing financial statements

6 important questions on Analysing financial statements

Fair value accounting

Price at which buyers/sellers would trade asset

Average tax rate

Amount of taxes firm pays/taxable income
calculates percentage of total income that goes directly paying taxes

Marginal tax rate

Percentage of taxes paid for every extra unit of currency you earn
the more money earned, the more tax
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NCF = CF(O) +CF (I) + CF (F)

- NCF= net cash flow
-CF(O)= operating cash flow, current assets and liabilities (through business activities)
-CF(I) = investing cash flow: changes in any non current assets
-CF(F) = financing cash flow, measures changes in equity and long term liabilities

Free cash flow/total cash flow of firm

Cash provided by operating activities and adjustments for capital spending/new financing
cash flows give more info about financial condition than income statement

Times interest earned (TIE) ratio

Measures how well company covers interest it has to pay
TIE ratio = EBIT (operating income) / interest expense
EBIT = earnings before interest and taxes

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