Finance Lecture Notes - Common-Size Statements, Income Statement Metrics, DuPont Analysis, Time Value of Money

Vocabulary flashcards covering common-size statements, key income-statement terms, DuPont analysis components, and Time Value of Money concepts as referenced in the lecture notes.

Time Value of Money

Concept that money today is worth more than the same amount in the future due to earning potential; used to compute present and future values with a discount rate.

Present Value (PV)

The current value of future cash flows discounted at an appropriate rate.

Future Value (FV)

The value at a future date of a current amount or series of cash flows given a certain interest rate.

Discount rate

The interest rate used to discount future cash flows to their present value.

Common-size financial statements

Financial statements in which each line item is expressed as a percentage of a base (e.g., total assets or net sales) to enable comparability.

Current assets

Assets expected to be converted into cash or used within one year.

Cash

Physical money and deposits; a current asset.

Accounts receivable

Amounts owed to the company by customers from credit sales; a current asset.

Inventory

Goods available for sale; a current asset.

Net plant and equipment

Net value of long-term tangible assets (PPE) after depreciation.

Net sales

Total revenue from goods or services after returns and allowances; top line of the income statement.

COGS (Cost of Goods Sold)

Direct costs attributable to producing goods sold by the company.

Gross profit

Net sales minus COGS.

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization.

Depreciation

Non-cash expense allotting the cost of tangible assets over their useful life.

EBIT (Operating income)

Earnings Before Interest and Taxes; profit from operations before financing and taxes.

Interest expense

Cost incurred from borrowed funds; interest on debt.

Taxable income

Income used to calculate taxes after allowable deductions.

Taxes

Income tax expense charged to the company.

Net income

Profit after all expenses, including taxes.

Dividends

Distributions of earnings to shareholders.

Addition to retained earnings

Net income minus dividends; increases retained earnings.

ROE (Return on Equity)

Net income divided by shareholders’ equity; measures profitability relative to equity.

ROA (Return on Assets)

Net income divided by total assets; profitability relative to assets.

Equity multiplier

A component of the DuPont analysis; assets divided by equity, reflecting financial leverage.

Net Profit Margin

Net income divided by net sales; profitability per dollar of sales.

Asset Turnover

Net sales divided by total assets; efficiency in using assets to generate sales.

DuPont analysis

Decomposition of ROE into components, commonly Net Profit Margin × Asset Turnover × Equity Multiplier (or ROA × Equity Multiplier) to analyze performance.