Financial Analyst Formulas Exam With Complete Solutions
Latest Update
Tips On Good Analysis - ANSWER - Go from simple to complex
-start with sales, gross margin and net earnings; is the company growing and is it
profitable
- think about each piece of the formulas and what goes into them when making your
hypotheses; not just the *sales* for example, what might have caused sales to change,
pricing, volume, etc
+break sales into into geographic region or business activities
-example of analysis "net income is decreasing, this is bad; it is due to bad management
of cost resources" then say "I recommend we do. such as manage costs of resources
better"
-example of a recommendation "we should invest x amount over x years" then state
consequences and/or how you might get the money
-ex. "I would renegotiate with customers to pay sooner; I would take this cash and invest
it in x; then I would make sure to manage our costs of resources continuing into the
future"
+ add possible explanations of WHY your recommendation could be wrong
+consider if it is a startup.the timeline of how long or if it is generating positive net
earnings-usually takes longer in beginning and initially generates negative net earnings
+CONSIDER 1. Nature of expenses, 2. Cost structure, and 3. Recurring profits
Net Earnings - ANSWER Revenues - Expenses (Not 100% instant cash)
+important to note if revenue is increasing at faster rate than expenses
Income Statement - ANSWER a film of activities during a period; interim results serve to
explain net income
+COGS - ANSWER +DIRECT costs assigned to production
, +Sales - COGS = Gross Margin
+SG&A - ANSWER +INDIRECT costs
Gross Profit - ANSWER Sales (volume of goods delivered & invoiced) - Cost of Goods
Sold (direct costs)
COGS= all the production costs; salaries of production personnel, raw materials cost,
plant operating costs, etc
+DIFFERENT from OPERATING profit
EBITDA - ANSWER Gross margin-Selling, administrative, etc (overhead)
SGA= salaries of admin, rent, marketing, etc
EBIT(Operating Profit) - ANSWER EBITDA - depriciation (take away D&A to get EBIT)
EBT - ANSWER EBIT - Interest + Financial Revenues
+Interest Payments - ANSWER +INCREASE in interest means increase in repayment of
debt OR increasingly financed by debt
+DECREASE in interest means decreased repayment of debt
+Tax Rate - ANSWER + tax rate = tax expense/income before tax
+Net earnings after tax - ANSWER + net earnings after tax = EBT x (1-t)
Exceptional Items - ANSWER added to the EBT at the bottom o the income statement
because they are classified as non recurring items (no direct link to investments); ex.
selling a truck when you aren't a truck selling company
+EBITDA = - ANSWER +EBITDA = Net earnings + interest expense + tax expense +
depreciation
Ratios of Margin - ANSWER comparing any unit on the income statement/sales; Part of
the return, but not all of it; help to make a direct link to items [operating ratios]; usually
Latest Update
Tips On Good Analysis - ANSWER - Go from simple to complex
-start with sales, gross margin and net earnings; is the company growing and is it
profitable
- think about each piece of the formulas and what goes into them when making your
hypotheses; not just the *sales* for example, what might have caused sales to change,
pricing, volume, etc
+break sales into into geographic region or business activities
-example of analysis "net income is decreasing, this is bad; it is due to bad management
of cost resources" then say "I recommend we do. such as manage costs of resources
better"
-example of a recommendation "we should invest x amount over x years" then state
consequences and/or how you might get the money
-ex. "I would renegotiate with customers to pay sooner; I would take this cash and invest
it in x; then I would make sure to manage our costs of resources continuing into the
future"
+ add possible explanations of WHY your recommendation could be wrong
+consider if it is a startup.the timeline of how long or if it is generating positive net
earnings-usually takes longer in beginning and initially generates negative net earnings
+CONSIDER 1. Nature of expenses, 2. Cost structure, and 3. Recurring profits
Net Earnings - ANSWER Revenues - Expenses (Not 100% instant cash)
+important to note if revenue is increasing at faster rate than expenses
Income Statement - ANSWER a film of activities during a period; interim results serve to
explain net income
+COGS - ANSWER +DIRECT costs assigned to production
, +Sales - COGS = Gross Margin
+SG&A - ANSWER +INDIRECT costs
Gross Profit - ANSWER Sales (volume of goods delivered & invoiced) - Cost of Goods
Sold (direct costs)
COGS= all the production costs; salaries of production personnel, raw materials cost,
plant operating costs, etc
+DIFFERENT from OPERATING profit
EBITDA - ANSWER Gross margin-Selling, administrative, etc (overhead)
SGA= salaries of admin, rent, marketing, etc
EBIT(Operating Profit) - ANSWER EBITDA - depriciation (take away D&A to get EBIT)
EBT - ANSWER EBIT - Interest + Financial Revenues
+Interest Payments - ANSWER +INCREASE in interest means increase in repayment of
debt OR increasingly financed by debt
+DECREASE in interest means decreased repayment of debt
+Tax Rate - ANSWER + tax rate = tax expense/income before tax
+Net earnings after tax - ANSWER + net earnings after tax = EBT x (1-t)
Exceptional Items - ANSWER added to the EBT at the bottom o the income statement
because they are classified as non recurring items (no direct link to investments); ex.
selling a truck when you aren't a truck selling company
+EBITDA = - ANSWER +EBITDA = Net earnings + interest expense + tax expense +
depreciation
Ratios of Margin - ANSWER comparing any unit on the income statement/sales; Part of
the return, but not all of it; help to make a direct link to items [operating ratios]; usually
