- Know the difference between LIFO and FIFO effects on B/S and I/S and Statement of Cash Flows and ratios. Remember that COGS=BI + P -EI 2. Know the effects of changing from straight line to accel. dep or vice versa on ROA, ROE, D/E ratio, net income, future depreciation, current depreciation, etc. 3. Be able to adjust financial ratios for off-balance sheet financing such as sales of accounts receivable with recourse, take-or-pay contracts, cap. leases, etc. 4. Know leases primarily from lessee perspective but be ready for 1 or 2 questions from lessor perspective. Know the sales type lease reports profits and has higher assets at inception; earlier profits, same total CF, and less CFO during lease term… 5. Know the different revenue recognition methods (there are 5 of them). 6. Know the differences between the percentage of completion and the completed contract methods for LT contracts and their impact on the financial ratios and the financial statements. 7. Know the DEC items (above or below the NICO) – discontinued operations, extraordinary items, etc., what they are and their effect on NICO and Net Income. 8. Know the construction of the Statement of Cash Flows under the direct and the indirect method and how to classify an activity as part of CFO, CFI, CFF. 9. Know a premium, par and discount bond and whether CFO, CFF will be overstated or understated for each bond. 10. Know the terminology for deferred taxes and how a DTL and DTA arises (is Income Tax expense greater than / less than income taxes paid?). Also know the ways an analyst can treat DTLs. 11. Know the difference between capitalizing vs expensing an expense and what is the impact on I/S and B/S as well as Statement of Cash Flows and financial ratios. 12. Know the 3 and 5-components of duPont, be ready to calculate and analyze 13. Know how to calculate growth rate (g = RR X ROE). 14.Go over ratios – current, quick, A/R turnover, average collection period, a/p turnover, inventory turnover, payables payment period, TAT, Fixed asset turnover, gross profit margin, net and operating profit margins, ROA, ROE and D/E, LTD/Total capital, D/A and interest coverage ratios. 15. Go over EPS calculations (basic and diluted) and know impact on numerator and denominator of options/warrants, convertible debt and convertible preferred shares. 16. Know what an impaired asset is and its impact on financial statements and financial ratios. 17. Know the different depreciation methods and their impact on the financial statements and ratios. 18. Know and understand the LIFO reserve and how to calculate it and its impact on the financial statements. 19. Know what is Free Cash Flow and how it differs from CFO on the Statement of Cash Flows.
#12: 3 component DuPont ROE= Net Profit Margin x Asset Turnover x Equity Multiplier 5 Component DuPont ROE= [Oper Profit Margin x Total Asset Turnover) - Int Exp Rate] x Equity Multiplier x Tax Retention Rate Net Profit Margin = NI/Sales Asset Turnover = Sales/Assets Equity Multiplier = Assets/Equity You should always be able to collapse the equation to get to NI/Equity. Oper Profit Margin = EBIT/Sales Int Exp Rate = Int Exp/Assets Tax Retention Rate = (1-t)
trek7000 I believe the above two should read “Financial Leverage” instead of Equity Multiplier. ROE = Net Profit Margin x Asset Turnover x Financial Leverage NI/NS * NS/TA * TA/CE Another formula NI/NS * NS/CE Which is Net Profit Margin * Equity Multiplier 5 Component DuPont ROE= [Oper Profit Margin x Total Asset Turnover) - Int Exp Rate] x Financial Leverage x Tax Retention Rate = [(EBIT/NS * NS/TA) - Int Exp/TA] * TA/CE * (1-T)
I am sorry everyone. I was going by what I read the other day on the forum where someone said Equity multiplier and financial leverage were the same thing. Sheesh I don’t think I stand a chance. http://www.analystforum.com/phorums/read.php?11,618420,618482#msg-618482
According to Investopedia: A measure of financial leverage. Calculated as: Total Assets / Total Stockholders’ Equity
The equity multiplier is also known as the financial leverage ratio. I wouldn’t get too bogged down with semantics.
ok, my bad… Equity Multiplier and Financial Leverage = TA / CE