CFA Level I
Financial Statement Analysis
Formula Reference Sheet
Earnings Per Share (EPS)
Basic EPS
Net Income − Preferred Dividends
Weighted Avg # of Common Shares
Comprehensive Income
Net Income + Other Comprehensive Income
Diluted EPS
Net Income
−
Pref. Dividends
+
Conv. Pref. Dividends
+
Conv. Bonds Interest
× (1−t)
Wtd Avg Common Shares
+
Shares from Conv. Preferred
+
Shares from Conv. Bonds
+
Shares from Employee Stock Options
Inventory
Calculating Ending Inventory
+ Beginning inventory
+ Purchases (cash paid to suppliers)
− COGS (cost of inventory sold)
= Ending inventory
Market Value of Inventory (NRV)
Replacement cost subject to upper & lower limits:
→ Upper limit = Net Realizable Value (NRV)
= Selling price − Completion cost
→ Lower limit = NRV − Profit margin
→ Upper limit = Net Realizable Value (NRV)
= Selling price − Completion cost
→ Lower limit = NRV − Profit margin
Market to Tangible Book Value
Market Cap
Shareholders’ Equity − Intangibles
Free Cash Flows
FCF = NI + NCC − ΔWC − ΔFCI
FCFF = NI + NCC + Interest(1−t) − FC Inv − WC Inv
FCFF = CFO + Interest(1−t) − FC Inv
FCFE = CFO − FC Inv + Net Borrowing
FCFE = FCFF − Interest(1−t) + Net Borrowing
NCC = non-cash charges · WC Inv = working capital investment
FC Inv = fixed capital investment · CFO = cash from operations
FC Inv = fixed capital investment · CFO = cash from operations
Coverage Ratios (Cash Flow Based)
Debt Coverage
CFOTotal Debt
Debt Payment Ratio
CFOCash paid for LT debt repayment
Interest Coverage (CFO)
CFO + Interest paid + Tax paidInterest paid
Dividend Payment Ratio
CFODividends paid
Reinvestment Ratio
CFOCash paid for LT assets
Investing & Financing Ratio
CFOCash outflows from financing & investing
Cash Flow Performance Ratios
Cash Flow to Revenue
CFONet Revenue
Cash to Income
CFOOperating Income
Cash Return on Assets
CFOAvg Total Assets
Cash Return on Equity
CFOAvg Total Equity
Cash Flow Per Share
CFO − Pref. DividendsWtd Avg Common Shares
Activity (Turnover) Ratios
Inventory Turnover
COGSAvg Inventory
Receivables Turnover
SalesAvg Receivables
Payables Turnover
PurchasesAvg Payables
Total Asset Turnover
RevenueAvg Total Assets
Fixed Asset Turnover
RevenueAvg Net Fixed Assets
Working Capital Turnover
RevenueAvg Working Capital
% of Assets Renewed (CapEx Intensity)
Cap ExGross PPE + Cap Ex
“Days Of” Ratios
Days of Inventory on Hand (DOH)
365Inventory Turnover
Days of Sales Outstanding (DSO)
365Receivables Turnover
Days of Payables Outstanding (DPO)
365Payables Turnover
Net Cash Conversion Cycle (CCC)
DOHDays of Inventory on Hand
+
DSODays of Sales Outstanding
−
DPODays of Payables Outstanding
Liquidity Ratios
Current Ratio
Current AssetsCurrent Liabilities
Quick Ratio (Acid Test)
Cash + Mkt. Securities + ReceivablesCurrent Liabilities
Cash Ratio
Cash + Mkt. SecuritiesCurrent Liabilities
Defensive Interval Ratio (DIR)
Cash + Short-term Instruments + ReceivablesAverage Daily Expenditures
Equity
Common Stock + Retained Earnings − Treasury Stock
Solvency Ratios
Debt to Equity
Total DebtTotal Equity
Debt to Capital
Total DebtTotal Debt + Equity
Debt to Assets
Total DebtTotal Assets
Financial Leverage
Avg Total AssetsAvg Total Equity
Interest Coverage (EBIT)
EBITInterest Payments
Debt to EBITDA
Total DebtEBITDA
Fixed Charge Coverage (FCC)
EBIT + Lease Payments
Interest Payments + Lease Payments
Also written: EBET + Lease Payments / (Interest + Lease Payments)
Profitability Ratios
Net Profit Margin
Net IncomeRevenue
Gross Profit Margin
Gross ProfitRevenue
Operating Profit Margin
EBITRevenue
Return on Assets (ROA)
Net IncomeAvg Total Assets
Return on Equity (ROE)
Net IncomeAvg Total Equity
Return on Total Capital
EBITAvg Total Capital
Return on Common Equity
NI − Preferred Dividends
Avg Common Equity
Depreciation & Long-Lived Assets
Straight-Line Depreciation
Original Cost − Salvage ValueUseful Life
Remaining Useful Life = Net PPE / Depreciation Expense
Double-Declining Balance (DDB)
2Useful Life
× (Cost − Accumulated Depreciation)
Deferred Taxes
Deferred Tax Liability (DTL)
DTL = (CV − TB) × Tax Rate
Assets: Carrying Amount > Tax Base → DTL | CA < TB → DTA
Liabilities: Carrying Amount > Tax Base → DTA | CA < TB → DTL
Liabilities: Carrying Amount > Tax Base → DTA | CA < TB → DTL
Income Tax Expense
Taxes Payable + ΔDTL − ΔDTA
Taxable income < pre-tax income → Deferred tax liability
Taxable income > pre-tax income → Deferred tax asset
Taxable income > pre-tax income → Deferred tax asset
Effective Interest Method & Bonds
Interest Expense
CV of bond liability (beg. of yr) × Mkt rate at issuance
Amount Amortized
Int. Expense − Int. Payment (coupon)
Equity (Balance Sheet Identity)
TE = TP + ΣLiab − ΔAsset
Retirement Plans
Funded Status of Pension Plan
Funded Status = Fair Value of Fund’s Assets − PV of Estimated Pension Liabilities
Positive = overfunded · Negative = underfunded