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Financial Reporting and Analysis
Cash Flow Statements: Difference Between IFRS and US GAAP
relation between BL Income and Cash
|
Cash flow |
IFRS |
US GAAP |
|
-------------------+-------------------------------------+----------- |
|
Interest received |
Operating or investing |
Operating |
|
Interest paid |
Operating or financing |
Operating |
|
Dividend received |
Operating or investing |
Operatiog |
|
Dividend paid |
Operating or financing |
Financing |
|
Bank overdraft |
cash equivalents |
Financing |
|
Taxes paid |
operating or investing or financing |
Operating |
|
-------------------+-------------------------------------+----------- |
| Beginning accounts receivable |
+ |
revenues |
- |
cash collected from customer |
= |
Ending accounts receivable |
| eginning equity + New shares issuance – Shares repurchased + Comprehensive income – Dividends = Ending equit |
Operating Activities: Direct Method
| ash received from customer |
| ash Paid for paid to employees |
| ash Paid for Interest |
| ash Paid for Income Ta |
| Cash received from customers |
+ |
Increase in accounts receivable |
= |
Revenue |
| Cash paid to employees |
+ |
Increase in salary and wages payable |
= |
Salary and wages expense |
| Cash paid for interest |
+ |
Increase in interest payable |
= |
Interest expense |
| Cash paid for tax |
+ |
Increase in tax payable |
= |
Income tax expense |
| B |
+ |
A |
- |
S |
= |
E |
| Beginning accounts receivable |
+ |
revenue |
- |
cash collected from customers |
= |
Ending accounts receivable |
| Beginning salary and wages payable |
+ |
salary and wages expense |
- |
cash paid to employees |
= |
Ending salary and wages payable |
| Beginning interest payable |
+ |
interest expense |
- |
cash paid for interest |
= |
Ending interest payable |
| ash Paid to supplier |
| cost of goods sold |
+ |
increase in inventory |
= |
Purchases |
| Cost of goods sold |
+ |
Increase in inventory |
- |
Increase in accounts payable |
= |
Cash paid to suppliers |
| ash Paid for Other Operating Expenses |
| Other operating expenses |
- |
Decrease in prepaid expenses |
- |
Increase in other accrued liabilities |
= |
Cash paid for other operating expenses |
Investing Activities
| ash received from sale of equipmen |
| ash paid for purchase of equipmen |
| B |
+ |
A |
- |
S |
= |
E |
| Beginning balance equipment |
+ |
equipment purchased |
- |
cost of equipment sold |
= |
ending balance equipment |
| Beginning balance accumulated |
+ |
depreciation expense |
- |
accumulated depreciation on equipment sold |
= |
ending balance accumulated depreciation |
| cost of equipment sold |
- |
depreciation on equipment sold |
+ |
gain on sale of equipment |
= |
cash received from sale of equipment |
Financing Activities
| ash paid for dividend |
| B |
+ |
A |
- |
S |
= |
E |
| Beginning balance of retained earning |
+ |
net income |
- |
dividends paid |
= |
ending balance of retained earning |
Ratios
| ctivity Ratio |
| Ratios |
Calculation |
What It Measures |
| Inventory turnover |
Cost of sales or cost of goods sold / Average inventory |
| Days of inventory on hand (DOH) |
Number of days in period(365) / Inventory turnover |
| Receivables turnover |
Revenue / Average receivables |
| Days of sales outstanding (DSO) |
Number of days in period(365) / Receivables turnover |
| Payables turnover |
Purchases / Average trade payables |
| Number of days of payables |
Number of days in period(365) / Payables turnover |
| Working capital turnover |
Revenue / Average working capital |
| Fixed asset turnover |
Revenue / Average net fixed assets |
| Total asset turnover |
Revenue / Average total assets |
| iquidity Ratio |
| Ratios |
Calculation |
What It Measures |
| Current |
Current assets / Current liabilities |
Ability to meet current liabilities |
| Quick (acid test) |
(Cash + Short-term marketable investments + Receivables) / Current liabilities |
Ability to meet current liabilities |
| Cash |
(Cash + Short-term marketable investments) / Current liabilities |
Ability to meet current liabilities |
| Defensive interval ratio |
Cash + Short-term marketable investments + Receivables |
Daily cash expenditures |
| Cash conversion cycle(net operating cycle) |
DOH + DSO – Number of days of payables |
|
| olvency Ratios |
| Ratios |
Calculation |
What It Measures |
| debt-to-asset(Total debt) |
Total debt / Total assets |
Financial risk and financial leverage |
| debt-to-capital |
Total debt / Total debtb + Total shareholders’ equity |
Financial risk and financial leverage |
| Debt-to-equity |
Total debt / Total shareholders’ equity |
Financial risk and financial leverage |
| Long-term debt-to-equity |
Total long-term debt / Total equity |
Financial risk and financial leverage |
| Financial leverage |
Average Total assets / Average Total equity |
Financial risk and financial leverage |
| overage Ratio |
| Ratios |
Calculation |
What It Measures |
| Interest coverage |
EBIT(CFO + Interest paid + Taxes paid) / Interest paid |
Ability to meet interest obligations |
| Fixed charge coverage |
EBIT + Lease payments/Interest payments + Lease payments |
|
| Debt coverage |
CFO / Total debt |
Financial risk and financial leverage |
| Reinvestment |
CFO / Cash paid for long-term assets |
Ability to acquire assets with operating cash flows |
| Debt payment |
CFO / Cash paid for long-term debt repayment |
Ability to pay debts with operating cash flows |
| Dividend payment |
CFO / Dividends paid |
Ability to pay dividends with operating cash flows |
| Investing and financing |
CFO / Cash outflows for investing and financing activities |
Ability to acquire assets, pay debts, and make distributions to owners |
| rofitability Ratios |
| Gross Profit Margin |
(Revenue - COGS - operating costs) / Revenue |
| Operating Profit Margin |
(gross profit - operating costs) / Revenue |
| Pretax Margin |
(gross profit - operating costs - interest ) / Revenue |
| Net Profit Margin |
(gross profit - operating costs - interest - Tax) / Revenue |
| ROA |
Net income / Average total assets |
| ROA |
(Net income + Interest expense * (1−Tax rate)) / Average total assets |
| ROA |
Operating income or EBIT / Average total assets |
| ROTC |
Operating income or EBIT / Average total capital(long-term debt, shot-term debt, preferred equity, common equity) |
| ROE |
Net income / Average total equity |
| ROE(Dupont) |
(Net income / Average total asset) * (Average total asset / Average shareholders' equity) |
| ROE(Dupont) |
(Net income / Revenge) * (Revenge / Average total asset) * (Average total asset / Average shareholders' equity) |
| ROE(Dupont) |
(Net income / EBT) * (EBT / EBIT) * (EBIT / Revenge) * (Revenge / Average total asset) * (Average total asset / Average shareholders' equity) |
| aluation Ratio |
| Dividend Payout Ratio |
dividends declared / net income available to common |
| Retention Rate |
(net income available to common - dividends declared) / net income available to common |
| Sustainable Growth Rate |
ROE * Retention Rate |
| erformance Ratio |
| Ratios |
Calculation |
What It Measures |
| Cash flow to revenue |
CFO / Net revenue |
Operating cash generated per dollar of revenue |
| Cash return on assets |
CFO / Average total assets |
Operating cash generated per dollar of asset investment |
| Cash return on equity |
CFO / Average shareholders’ equity |
Operating cash generated per dollar of owner investment |
| Cash to income |
CFO / Operating income |
Cash generating ability of operations |
| Cash flow per share |
(CFO – Preferred dividends) / Number of common shares outstanding |
Operating cash flow on a per-share |
Z-score = 1.2 × (Current assets – Current liabilities)/Total assets
- 1.4 × (Retained earnings/Total assets)
- 3.3 × (EBIT/Total assets)
- 0.6 × (Market value of stock/Book value of liabilities)
- 1.0 × (Sales/Total assets)
Inventory
LIFO to FIFO
Inventory Measurement
Long -Lived Asset
| IFO Inventory = LIFO Inventory + LIFO Reserv |
| IFO Cash = LIFO Cash - LIFO Reserver * Tax Rat |
| IFO Equity = LIFO Equity + LIFO Reserver * (1 - Tax Rate |
| IFO Net Income = LIFO Net Income + (Ending LIFO Reserve - Begging LIFO Reserve) * (1 – Tax rate |
| IFO Returned Earning = LIFO Returned Earning + LIFO reserve * (1 – Tax rate |
| IFO COGS = LIFO COGS - (Ending LIFO Reserve - Begging LIFO Reserve |
| RV(Net realizable value) = expected sales price - completion costs - estimated selling costs |
| Ratios |
Capitalizing |
Expensing |
| Total asserts |
High |
Low |
| Shareholders' equity |
High |
Low |
| Income variability |
low |
High |
| Net income(first year) |
High |
Low |
| Net income(subsequent years) |
Low |
High |
| Cash flow from operations |
High |
Low |
| Cash flow from investing |
Low |
High |
| Debt ratio & Debt-to-equity |
Low |
High |
| Interest coverage (first year) |
High |
Low |
| Interest coverage (subsequent years) |
Low |
High |
Economics
Quantiative Method
Ethical and Professional Standards
Corporate Finance
Portfolio Management
Equity Investments
Fixed Income
Derivatives
Alternative Investments
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Issues
What is amortise reverse
Non-cash items (e.g., amortisation of bond premium) will subtrat from net income when use indirect method for statement of cash flows.
How to understand
Whst is Income variability
| ttp://bbs.pinggu.org/thread-3171465-1-1.htm |
| cost of goods sold |
+ |
increase in inventory |
= |
Purchases |