Section A.1 Basic Financial Statement Analysis a. Common size statement = line items on income statement and statement of cash flows presented as a percent of sales; line items on balance sheet presented as a percent of total assets Common base year statements = (new line item amount /base year line item amount) x 100 Annual growth rate of line items = (new line item amount / old line item amount) – 1
Letter references refer to subtopics in Learning Outcome Statements
Section A.2 Financial Performance Metrics – Financial Ratios Unless otherwise indicated, end of year data is used for balance sheet items; full year data is used for income statement and statement of cash flow items. Liquidity a. Net working capital = current assets – current liabilities
b(1) Current ratio = current assets / current liabilities b(2) Quick ratio or acid test ratio = (cash + marketable securities + accounts receivable) / current liabilities b(3) Cash ratio = (cash + marketable securities) / current liabilities b(4) Cash flow ratio = operating cash flow / current liabilities b(5) Net working capital ratio = net working capital / total assets Leverage g(1) Degree of financial leverage = % change in net income / % change in EBIT, or = EBIT / EBT g(2) Degree of operating leverage = %... [continues]
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