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Financial accounting analysis Cheat Sheet by

Cheat sheet for RM's and CA's from Module 1

STATEMENT TYPE / BY / COMFORT LEVEL

Company prepared
Internal accountant
Lowest level
Compil­iation
3rd party preparer
More comfort
Review
CPA
Higher level of comfort
Audit
CPA
Highest level of comfort

SET OF FINANCIAL STATEM­ENTS:

Balance sheet
Shows assets owned, liabil­ities owed & shareh­older equity at a point in time
Income statement
Summarizes operating transa­ctions for a period of time
Statement of Cash flows
Shows cash inflows & outflows for period of time (opera­ting, investment or financing)
Flash Report (optional)
1 page report showing key perfor­mance indicators

GOAL OF ACCOUNTING SYSTEM

Process all transa­ctions completely & effect­ively
Report transa­ctions accura­tely, reliably, in timely manner
Comply with laws and regula­tions
Faithful repres­ent­ation
Verifiable
Comparable with prior periods
Relevant
Unders­tan­dable
Timely

TRANSA­CTION CLASSI­FIC­ATION

DEBIT
CREDIT
Assets
Liabil­ities
Expenses
Income / revenue
Distri­butions / owners drawing
Capital injection
 

ACCOUNTING METHODS

GAAP - generally accepted accounting principles (accrual basis, current regula­tions, subject to change)
Accrual basis - recognizes business revenue and matching transa­ctions when they happen
Cash basis (not Gaap)- recognizes revenue and expenses when paid

LIQUIDITY RATIOS

Current Ratio
Current assets / current liabil­ities
Ability to meet short term obliga­tions
Quick Ratio
CA - inventory / ciurrent liabil­ities
Ability to meet short term obliga­tions with most liquid assets

ACTIVITY RATIOS

A/R Days
A/R / Sales * # days in period
Average collection period for sales
Inventory Days
Inv / COGS * # days in period
Average days company holds inventory before selling it.
A/P Days
AP / COGS * # days in period
Average number of days of credit company shows
Working capital cycle days
Days in A/R + Days in Inv - Days in A/P
# days to convert working capital into revenue
 

LEVERAGE RATIOS

Debt to Equity Ratio
Total Liabil­ities / Total Equity
Measure degree company is financing oipera­itons with debt rather than equity
Interest Coverage Ratio
EBIT / interest
Ability to meet ingterest obliga­tions.
Debt Ratio
Total liabil­ities / Total assets
Extent to swhich company uses external financing to finace assets
Funded debt to EBITDA Ratio
Funded Debt / EBITDA
Ability to meet funded obliga­tions before covering tax, deprec­iation, and interst expense

PROFIT­ABILITY RATIOS

Gross profit margin
(Sales - variable COGS - fixed COGS) / Sales
Margin after paying direct costs of doing business (labor, materials and direct production costs)
Operating profit margin
Gross profit - SG&A expenses
Margin after paying SG&A expenses
Pretax profit margin
Operating profit - interest +/- other income or expenses
Profit margin after paying all expenses of business (except income taxes)
EBITDA Margin
NI + depr + Int + taxes / Sales
Margin before depr, interest, and taxes
       
 

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