Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Finance & Accounting Shortcuts

472 views

Published on

Finance and accounting shortcuts

Published in: Business
  • Be the first to comment

  • Be the first to like this

Finance & Accounting Shortcuts

  1. 1. Finance & Accounting Shortcuts
  2. 2. Accounting Equation 2 Assets = Liabilities + Equity = = = Current Assets Current Liabilities Capital + + + Fixed Assets Long Term Debt Reserves + + Intangibles Returned Earnings + Revenue − Expenses − DividendsBasel Omar Abu-Ali
  3. 3. Accounting Balance 3 Assets Liabilities Equity Assets + − + + − + − − Liabilities + − − − + + Equity + − − + Basel Omar Abu-Ali
  4. 4. Financial Analysis Common-size (to Sales) Common-size (to Assets) Trend – History Last year same period Budget Variance Benchmarking Forecast DCF 4Basel Omar Abu-Ali
  5. 5. Financial Ratios (1) 5 (Cash + Marketable Securities) Current Assets (Current Assets − Inventory) Total Assets Total Liabilities Cash Flow from Operations / Total Assets Debt Ratio CFO / Assets Current Liabilities Cash Ratio (/) Liquidity Ratio (−) Working Capital Quick Ratio Equity Financial Leverage Debt to Equity Ratio CFO / Liabilities Interest CFO / Interest Basel Omar Abu-Ali
  6. 6. Financial Ratios (2) 6 Sales Purchases COGS Gross Profit EBIT Net Profit / Receivables Receivables Turnover Inventory Inventory Turnover Fixed Assets Fixed Assets Turnover Total Assets Assets Turnover Return on Assets Payables Payables Turnover Equity Return on Equity Sales Gross Profit Margin Operating Profit Margin Net Profit Margin Interest Interest Coverage Ratio Basel Omar Abu-Ali
  7. 7. Cash Conversion Cycle 7 365 / Receivables Turnover Days of sales outstanding + Inventory Turnover Days of inventory in hand = Operating Cycle − Payables Turnover Days of payables = Cash Conversion Cycle Basel Omar Abu-Ali
  8. 8. Capital Budgeting–Feasibility Study–Business Plan 8 Business Plan = Feasibility Study + Documentation = Capital Budgeting + Market Study = + Financial Study Technical Study Basel Omar Abu-Ali
  9. 9. Free Cash Flow to Firm (FCFF) & Free Cash Flow to Equity (FCFE) 9 Net Profit Net Profit + + Noncash items (Depreciation) Noncash items (Depreciation) + Interest (1−Tax) − − Changes in Working Capital Changes in Working Capital − − CAPEX CAPEX + New (or repayment of) debt + + TV TV = = FCFF FCFE Basel Omar Abu-Ali
  10. 10. Investment Appraisal Indicators 10 Payback Period (PBP) Discounted PBP Accounting Rate of Return (ARR) Net Present Value (NPV) Internal Rate of Return (IRR) Profitability Index (PI) Simple calculation Y Y Income approach Y Cash flows approach Y Y Y Y Y Ignores cash flow after payback period Y Y Considers TVM Y Y Y Y Discount rate Y Y Y Y Terminal value Y Y Y Results # Years Y Y Value Y % Y Y >1< Y Basel Omar Abu-Ali
  11. 11. Key (Net Present Value or NPV) Value Drivers (1) Value RFR Beta Market Rate Interest Rate WACC 11Basel Omar Abu-Ali
  12. 12. Key (Net Present Value or NPV) Value Drivers (2) Value Tax Rate Growth Rate Terminal Value 12Basel Omar Abu-Ali
  13. 13. Merger & Acquisition (M&A) 13 Firm Firm Firm(s) Operating Merger A + B = A or B Acquisition A + B = A and B Consolidation A + B = C Joint Venture A + B = A and B and C Basel Omar Abu-Ali
  14. 14. Multiples 14 Enterprise Value (EV) Market Share Price Dividends / Sales EV to Sales Price to Sales Book Value Market to Book Earnings per Share (EPS) Price to Earnings Payout Ratio Market Share Price Yield Ratio EBITDA EV Multiple EV = Market Capitalization + Market Value of Debt − Cash Market Cap. = Shares Outstanding × Market Share Price EBITDA = Earnings before interest, taxes, depreciation, and amortization Basel Omar Abu-Ali
  15. 15. Options 15 CALL LONG Owner Buyer Right to buy SHORT Writer Seller Obligation to sell PUT LONG Owner Buyer Right to sell SHORT Writer Seller Obligation to buy CALL Market Price > Strike Price In the money Market Price = Strike Price At the money Market Price < Strike Price Out of the money PUT Market Price < Strike Price In the money Market Price = Strike Price At the money Market Price > Strike Price Out of the money Option Value = Intrinsic Value (IV) + Time Value = = CALL Market Price − Strike Price Premium − IV PUT Strike Price − Market Price Basel Omar Abu-Ali
  16. 16. Price-Earnings Ratio (P/E Ratio) 16Basel Omar Abu-Ali P/E = D/E = P = D = K = D + G (K − G) (K − G) P E = EPS = Net Income D: Dividends Common Shares P: Price G: Growth rate Ke: Cost of equity G = (1 − D/E) × ROE Kd: Cost of debt We: Weight of equity Wd: Weight of debt ROE = Assets × Net Income × Sales RFR: Risk-free rate Equity Sales Assets B: Beta MR: Market return K = Hurdle Rate = Discount Rate = WACC WACC = ( Ke × We ) + ( Kd × Wd ) = = = = CAPM Equity Interest (1−Tax) Debt = (Equity + Debt) (Equity + Debt) RFR + B (MR − RFR)
  17. 17. Goodwill Acquired Maintained Built 17Basel Omar Abu-Ali
  18. 18. Business Model Aspects What Why How When Who Where 18Basel Omar Abu-Ali
  19. 19. ‘S’-Holders Stickholders Stakeholders Shareholders •BOD •Community •Competitors •Creditors •Government •Investment bankers •Media •Rating Agencies •Researchers •Small investors • Customers • Consultants • Employees • Management • Potential investors • Strategic Partners • Suppliers • Employees (stock options) • Owners 19Basel Omar Abu-Ali

×