Adventis Financial Modeling Level 1 Certification

Income Statement

Presents the results of operations over a period of time, typically monthly, quarterly and/or annually

Income Statement

The purpose is to show stakeholders whether the company made or lost money during the period being reported, and it indicates how revenues are transformed into net income

Income Statement

Displays revenues recognized for a specific period of time and the expenses charged against those revenues

Revenue (Sales)

The amount charged for the delivery of goods or services

Cost of Sales (Cost of Goods Sold)

The direct cost of producing revenue (raw materials, direct wages, etc.)

Gross Profit

calculated as revenue less cost of sales and indicates how efficiently labor and supplies are used in the production process

Operating Expenses

All other expenses required to run the business (management salaries, marketing, travel, etc.)

Operating Income (EBIT)

Calculated as revenue less cost of sales and operating expenses and indicates a company's earning power from ongoing operations

Non-Operating Expenses

Expenses or income not related to the regular business of the company (interest expense, restructuring expenses, etc.)

Corporate Taxes

Local and federal income taxes the company incurs

Net Income (Net Earnings)

Calculated as revenue less all expenses of the company and indicates the increase in shareholders' value resulting from operations

Balance Sheet

Shows and organization's financial position at a particular point in time

Balance Sheet

Discloses the resources an organization controls (assets) and the claims on those resources (liabilities and equity)

Assets

What a company owns

Liabilities

What a company owes

Equity

Any remaining claims of shareholders against a company

Basic Accounting Equation

Assets = Liabilities + Equity

Accrual Accounting Method

Measures the performance of a company regardless of when cash transactions occur. This method is the standard accounting practice for companies

Cash

Current assets comprising currency or currency equivalents that can be accessed immediately

Accounts Receivable

The amount owed to an organization from the sale of its products or services

Fixed Assets

The value of assets and property that cannot easily be converted to cash and has a useful life of greater than 1 year (Property, Plant & Equipment)

Accounts Payable

The amount owed to an organization's vendors

Debt

The amount of obligations owed to creditors

Equity

Cumulative shareholder investment plus cumulative net income

Working Capital

A measure of a company's efficiency and its short-term financial health

Working Capital

Calculated as non-cash current assets less non-debt current liabilities

Non-Cash Current Assets

Represent all assets besides cash that are expected to be converted into cash within a year. These assets appear on the company's balance sheet and include accounts receivable, inventory, prepaid expenses, and other assets

Non-Debt Current Liabilities

Represent all obligations besides short-term debt that are due within one-year. They appear on the company's balance sheet and include accounts payable, accrued liabilities, and other obligations

Debt

-Less expensive, and less risky form of capital

-Has priority claims on the company's assets if the company goes bankrupt

Equity

-More expensive, and more risky form of capital; therefore, investors require a higher rate of return to mitigate their risk

Net Debt

Total debt less cash. If cash were used to pay down debt, this would be the resulting amount, and is usually used in credit analysis, as creditors assume the company's cash balance could be applied to debt repayment in the event of a liquidity crunch or bankruptcy

Cash Flow Statement

Shows how much cash is generated or lose during a period of time

Cash Flow Statement

Reconciles net income to change in cash, and shows how changes in the balance sheet accounts and net income affect cash and breaks down cash into operating, investing and financing activities

Cash Flow Statement

Useful in determining the short-term viability of a company, particular its ability to pay its bills, and also reflects the company's liquidity

Cash from Operating Activities

The amount of cash generated by an organization's normal business operations. The most common line items include net earnings, depreciation and amortization, and change in working capital accounts

Cash from Investing Activities

Cash flow related to the acquisition and disposal of an organization's long-term investments, including property, plant and equipment and mergers and acquisitions. The most common line items are capital expenditures and acquisitions

Cash from Financing Activities

Cash flow between an organization and its owners and creditors. The most common line items include debt and equity issuances and repayments, dividends, and share repurchases

Beginning Cash Balance

The ending cash balance from the pervious period of time

Change in Cash

Sum of Cashing from Operating, Investing, and Financing Activities

Ending Cash Balance

The resulting cash balance for the selected period of time and should be reflected on the balance sheet

Depreciation & Amortization

A method of allocating the cost of an asset over its useful life for both accounting and tax purposes

Capital Expenditures

Funds used by a company to purchase or upgrade physical assets such as plants, property and equipment

Change in Working Capital

The impact of cash returning from all non-cash current asset accounts and all non-debt current liability accounts. A decrease in working capital represents a source of cash and would be represented on the cash flow statement as a positive number

Share Repurchases

The reacquisition by an organization of its own stock. This is a from of returning capital to shareholders and one that can be instituted irregularly versus a moral dividend program

Dividends

A distribution of cash to current shareholders

Change in Debt

Represents any debt issuances or repayments

EBITDA

Gives an indication of its current operational profitability, and is widely used when assessing the performance of a company, as it allows for a comparison of profitability between companies in a wide range of industries

Free Cash Flow

A way of looking at a company's cash flow to see what is available for distribution to creditors and shareholders. Commonly defined as cash flow from operations less capital expenditures

Liquidity Ratios

Indicate a company's ability to meet its short-term financial obligations. Of most interest to those extending short-term credit to a company such as banks

Efficiency Ratios

Indicate how effectively a company utilizes its assets

Profitability Ratios

Provide insight into the profits made by a company relative to its assets, equity or revenue

Credit Ratios

Measure a company's ability to meet its long-term obligations, and benchmark its overall capital structure

Market Ratios

Measure investor response to owning a company's stock

Current Ratio

Indicates whether a company's short-term assets are readily available to pay off its short-term liabilities

Current Ratio Formula

Current Assets/Current Liabilities

A ratio between 1.50 and 3.00 is normal

Cash Ratio

Indicates a company's ability to use cash to pay off its current liabilities

Cash Ratio Formula

Total Cash/ Current Liabilities

A ratio between 0.20 and 1.00 is normal

Days Receivable

Average number of days an invoice is in accounts receivable before collection

Days Receivable Formula

(Accounts Receivable/ Annual Revenue ) *365

Asset Turnover

The amount of revenues generated per dollar of assets; measures the efficiency of a company's use of its assets in generating sales revenue

Asset Turnover Formula

Total Revenue/ Total Assets

Gross Margin

Relative to revenues, indicates how efficiently labor and supplies are used in the production process

Gross Margin Formula

Gross Profit / Revenue

Operating Margin

Relative to revenue, indicated a company's earning power from ongoing operations

Operating Margin Formula

Operating Income/ Revenue

Net Margin

Relative to revenue, indicated the increase in shareholders' equity from earnings

Net Margin Formula

Net Income/ Revenue

Return on Equity

Measures profits earning for each dollar invested in a company's equity

Return on Equity Formula

Net Income/ Shareholder's Equity

Debt/ EBITDA (Total Leverage)

Used to assess the probability on defaulting on debt

Debt/ EBITDA Formula

Total Debt/ EBITDA

Net Debt/ EBITDA (Net Leverage)

Used to assess the probability on defaulting on debt, taking into account a cash balance that could be used to pay down debt

Debt-to-Equity

Indicated the relative proportion of debt and equity used to finance a company's assets

Debt-to-Equity Formula

Total Debt/ Total Equity

EBITDA Interest Coverage Ratio

Indicates how easily a company can pay interest on outstanding debt

EBITDA Interest Coverage Ratio Formula

EBITDA/Interest

Market Ratios

Evaluate the market price of a share of common stock and are an indicator of a company's ability to generate profits or build assets

Equity Value (Market Value, Market Capitalization)

Value of the equity shareholders' portion of the company, or the value of all the shares outstanding

Equity Value Formula

Enterprise Value- Net Debt or Share Price* Shares Outstanding

Enterprise Value (Firm Value or EV)

Shows the sum of all claims on a company and is independent of capital structure; changes in capital structure do not affect EV

Enterprise Value Formula

Equity Value + Net Debt

Price/ Earnings (P/E)

Shows how much investors are willing to pay per dollar of earnings and is affected by leverage

Price/ Earnings Formula

Market Value/ Net Earnings

Earnings per Share (EPS)

Shows the amount of earnings attributable to a share of common stock

Earnings per Share Formula

Net Earnings/ Shares Outstanding

Dividend Yield

Shows the return on a share of common stock

Dividend Yield Formula

Dividend per Share/ Market Price per Share

Enterprise Value/ EBITDA

Measures the value of common stock in a way that enables comparison of companies across different industries; EBIT can also be used

Enterprise Value/ Revenue

Compares the total value of a company to its revenue