Cash Flow Forensics
The specific line item from the Income Statement that serves as the "starting point" for calculating operating cash flows under the Indirect Method.
Net Income
This DuPont lever measures a firm's expense control and represents the percentage of each $1 of sales remaining after all costs are paid.
Net Profit Margin
This ratio is a more stringent measure of liquidity because it excludes inventory, which often takes longer to convert to cash.
Quick Ratio (or Acid Test)
This ratio measures the percentage of total assets that are financed by creditors.
Debt Ratio
This metric, often called the "Price Tag" of the company on the stock exchange, is calculated by multiplying share price by total shares.
Market Capitalization (Market Value)
According to the "Cash Flow" a decrease in a liability account (like a firm paying off a loan) is classified as this type of cash movement
Cash Outflow (Use)
This component of the DuPont equation measures asset utilization by showing how many dollars in sales are generated for every dollar invested in assets.
Total Asset Turnover
Also called the average collection period, this ratio evaluates a firm’s efficiency in collecting credit sales.
Days Sales Outstanding (DSO)
Management uses this ratio to determine how many times Operating Income (EBIT) can cover its annual interest obligations.
Times-Interest-Earned (TIE) Ratio
Often called the "bottom line," this is considered the most important item in the income statement for determining if a stock is overvalued.
Earnings Per Share (EPS)
Apex Innovations reports a Net Income of $950.0 and Depreciation of $120.0. If their Accounts Receivable increased by $80.0 during the year, calculate their Net Cash from Operations.
$990.0
($950 + $120 - $80)
Apex has a Profit Margin of 8% and a Total Asset Turnover of 1.5. Calculate their Return on Assets (ROA).
12% (0.08 × 1.5)
Apex has $800.0 in Current Assets and $400.0 in Current Liabilities. Calculate their Net Working Capital
$400,000 ($800k Assets - $400k Liabilities)
Apex has Total Assets of $2,500,000 and a Debt Ratio of 40%. Calculate their Total Common Equity
$1,500,000
($2.5M Assets - $1M Debt)
Apex has a P/E Ratio of 18.0 and a current stock price of $54.00. Calculate their Earnings Per Share.
$3.00 ($54 / 18)
A firm has a total Net Cash Flow of $1,200.0. If the Income Statement shows a Net Income of $850.0, calculate the value of non-cash expenses (Depreciation) for the period
$350.0 ($1,200 - $850)
A firm has a Profit Margin of 6%, a Total Asset Turnover of 2.0, and an Equity Multiplier of 2.0. Calculate their Return on Equity (ROE).
24% (0.06 × 2.0 × 2.0)
A firm has a Cost of Goods Sold of $1,800.0 and Inventory of $300.0. Calculate their Inventory Turnover.
Answer: 6.0x
($1,800 / $300)
A firm reports EBIT of $750,000 and Interest Charges of $125,000. Calculate their TIE Ratio.
6.0 times
A firm has a Book Value per Share of $25.00 and 100,000 shares outstanding. If the Market/Book (M/B) ratio is 3.0, calculate the total Market Capitalization of the firm.
$7,500,000 ($25 BVPS × 3.0 M/B = $75 Price; $75 × 100k shares)
Apex began the year with $500.0 in Retained Earnings. It earned $300.0 in Net Income and paid out $80.0 in total dividends. Calculate the Ending Retained Earnings balance.
$720.0 ($500 + $300 - $80)
Apex has a Return on Assets (ROA) of 10% and an Equity Multiplier of 2.0. Calculate their Return on Equity (ROE).
20% (10% × 2.0)
Apex has an Inventory Turnover of 4.0x. Calculate their Days Inventory Outstanding (DIO) using a 365-day year.
Answer: 91.25 days (365 / 4
Calculate the Fixed Charge Coverage (FCC) ratio for Apex if they have EBIT of $600,000, Lease Payments of $60,000, and Interest Charges of $90,000.
4.4 times
([$600k + $60k] / [$90k + $60k])
Apex has 500,000 shares outstanding and a Total Common Equity of $12,000,000. If the M/B ratio is 2.0, calculate the current Market Price per share.
$48.00
($12M / 500k shares = $24 BVPS.
($24 * 2.0 = $48)