Wall Street Prep Accounting-Exam with
complete solutions
Liquidity Ratios
measures of a firm's short-term ability to meet its current obligations
Profitability Ratios
measures of a firm's profitability relative to its assets (operating efficiency) and to its revenue
(operating profitability)
Activity Ratios
Measure of efficiency of a firm's assets
Solvency Ratios
Measure of a firm's ability to pay its obligations
Inventory Turnover
COGS / avg inventory
Receivables Turnover
revenue / average accounts receivable
DSO (Days Sales Outstanding)
AR/Credit Sales * days in period
days in period/receivables turnover
A/P turnover
COGS / Average A/P
PPP (payables purchasing period)
days in period/ Accounts payable turnover
Current Ratio
current assets/current liabilities
Quick ratio (acid test)
Cash and AR divided by current liabilities
Gross profit margin
gross profit/revenue
operating margin
operating profit/revenue
,net profit margin
net income/revenue
asset turnover
revenue/ average assets
return on assets (ROA)
Net Income / Average Assets
return on equity (ROE)
net income/ total equity
Basic EPS
(Net Income - Preferred Dividends)/(Weighted Average of Shares Outstanding)
Diluted EPS
diluted net income / weighted average diluted shares outstanding
dividend yield
dividends/net income
debt to EBITDA
Total Debt/EBITDA
interest coverage ratio
EBIT/ interest expense
fixed charge coverage
(EBIT + Lease charges)/(Interest Payments + Lease charges)
Debt to Total Assets
Total Debt/Total Assets
debt to equity
total liabilities/total equity
cash from operations (CFO)
uses net income as a starting point and converts accrual base net income into cash flow from
operations via a series of adjustments
cash from investing activities (CFI)
capital expenditures / asset sales and purchases
, cash from financing activities (CFF)
new borrowing / pay down of debt / new issuance of stock / share repurchases / issuance of
dividends
working capital
-CFO
-increase in current assets = cash outflow
-increase in current liabilities = cash inflow
asset write downs / impairments
-added back to CFS via CFO
Increases in A/R, inventory, prepaid expenses, other current assets should be _____________ net
income to get to CFO
subtracted
increases in A/P, accrued expenses, other current liabilities should be ____________ net income to
get to CFO
added
gains on sale of assets
subtracted from CFO
stock based compensation
added to CFO
Common CFI inflows/outflows
- capital expenditures
- purchases of intangible assets
+ asset sales
+ sales of debt/ equity security
- purchases of debt/equity security
Common CFS inflows/outflows
-Issuance / repayment of debt (cash inflow / outflow)
-Common stock issued / repurchased (cash inflow / outflow)
-Payment of common & preferred dividends (cash outflow)
Assumptions of Accounting
accounting entity, going concern, measurement, periodicity
principles of accounting
1. Historical Cost
2. Revenue Recognition
3. Matching Principle
4. Full Disclosure
complete solutions
Liquidity Ratios
measures of a firm's short-term ability to meet its current obligations
Profitability Ratios
measures of a firm's profitability relative to its assets (operating efficiency) and to its revenue
(operating profitability)
Activity Ratios
Measure of efficiency of a firm's assets
Solvency Ratios
Measure of a firm's ability to pay its obligations
Inventory Turnover
COGS / avg inventory
Receivables Turnover
revenue / average accounts receivable
DSO (Days Sales Outstanding)
AR/Credit Sales * days in period
days in period/receivables turnover
A/P turnover
COGS / Average A/P
PPP (payables purchasing period)
days in period/ Accounts payable turnover
Current Ratio
current assets/current liabilities
Quick ratio (acid test)
Cash and AR divided by current liabilities
Gross profit margin
gross profit/revenue
operating margin
operating profit/revenue
,net profit margin
net income/revenue
asset turnover
revenue/ average assets
return on assets (ROA)
Net Income / Average Assets
return on equity (ROE)
net income/ total equity
Basic EPS
(Net Income - Preferred Dividends)/(Weighted Average of Shares Outstanding)
Diluted EPS
diluted net income / weighted average diluted shares outstanding
dividend yield
dividends/net income
debt to EBITDA
Total Debt/EBITDA
interest coverage ratio
EBIT/ interest expense
fixed charge coverage
(EBIT + Lease charges)/(Interest Payments + Lease charges)
Debt to Total Assets
Total Debt/Total Assets
debt to equity
total liabilities/total equity
cash from operations (CFO)
uses net income as a starting point and converts accrual base net income into cash flow from
operations via a series of adjustments
cash from investing activities (CFI)
capital expenditures / asset sales and purchases
, cash from financing activities (CFF)
new borrowing / pay down of debt / new issuance of stock / share repurchases / issuance of
dividends
working capital
-CFO
-increase in current assets = cash outflow
-increase in current liabilities = cash inflow
asset write downs / impairments
-added back to CFS via CFO
Increases in A/R, inventory, prepaid expenses, other current assets should be _____________ net
income to get to CFO
subtracted
increases in A/P, accrued expenses, other current liabilities should be ____________ net income to
get to CFO
added
gains on sale of assets
subtracted from CFO
stock based compensation
added to CFO
Common CFI inflows/outflows
- capital expenditures
- purchases of intangible assets
+ asset sales
+ sales of debt/ equity security
- purchases of debt/equity security
Common CFS inflows/outflows
-Issuance / repayment of debt (cash inflow / outflow)
-Common stock issued / repurchased (cash inflow / outflow)
-Payment of common & preferred dividends (cash outflow)
Assumptions of Accounting
accounting entity, going concern, measurement, periodicity
principles of accounting
1. Historical Cost
2. Revenue Recognition
3. Matching Principle
4. Full Disclosure
