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Study Session 7: Financial Reporting and Analysis: Income Statements, Balance Sheets and Cash Flow Statements

Cost of Net Debt Confusion

Noticing on the Group Danone Consolidated Income Statement (CFA Vol. 3 p.95, PDF p.111) that cost of net debt doesn’t factor into net income. Am I missing something here?

Free Cash Flow to the Firm FCFF

Why only Fixed Capital investment is deducted from CFO to arrive at FCFF? Why CFI is not deducted? CFI also includes cash flows and will have an impact on how much Free cash is available to the firm?

R and D treatement IFRS v GAAP

My understanding is:

IFRS, research is expensed as incurred, development can be capitalized once technological feasibility has been established.

Gaap, research and development is expensed as incurred.

Do I have it down?

depreciation

1- ” If the asset is expected to have no residual value, the DB method will never fully depreciate it, so the DB method is
typically changed to straight-line at some point in the asset’s life”

this sentence is quoted form schewezer, can someone explain it by a numerical example?

2- is there any difference between Accelerated depreciation and DDM?

if yes provide an example plz.

PPE valuation

Fair value is the value reported at under the revaluation model, right? thus, an asset whether reported “at fair value” or “reported under revaluation model” will have the same value?? Thanks!

weighted average number of shares

Assume IFRS unless otherwise stated.

An analyst gathered the following information about a company:

1 Jan: Shares outstanding 1,000,000
1 April: 3 for 1 stock split    
1 July: Shares issued    500,000
1 August: 25% stock dividend    
1 Oct: Shares repurchased    300,000
31 Dec: Number of shares outstanding    4,075,000
The weighted average number of ordinary shares that will be used in the calculation of basic EPS is closest to:

 

3,039,583.

 

4,050,000.

 

3,762,500.

Stock Buyback Question

A company has initiated the process of selling unproductive land, representing 5% of its total assets, and using the proceeds to buy back its common shares. Holding other factors constant, these actions by the company will most likely result in a:

  1. lower sustainable growth.
  2. higher return on equity.
  3. higher operating margin.

The answer is B. Can someone explain this to me in more detail? Thank you~!