CBA Exam Review
Part 3
James A. McIntyre, CCE
NACM
1
What Do Financial Statements Indicate?
•Liquidity
•Solvency
•Management Efficiency
2
Financial Statements
•Balance Sheet (Resource Sheet)
•Shows the financial position at a point in time
•Income Statement (Activity Statement)
•Profit or loss for the accounting period
•Statement of Retained Earnings
•Reconciles the change in retained earnings account –
profits, dividends and adjustments
•Statement of Cash Flows
•Separates cash flows into operating activities, investing
activities, and financing activities
3
Accountant’s Opinions
•Unqualified opinion
•Unqualified opinion – with explanatory language
•Qualified opinion
•Disclaimer of opinion
•Adverse opinion
•Compilation
4
Assets
Balance Sheet
Liabilities
Current Assets:
Cash
Marketable Securities
Receivables
Merchandise or Inventory
Prepaid Expense
________________________
Current Assets (total of above)
Accounts Payable – Trade
Notes Payable – Banks
Notes Payable – Others
Accruals
Unearned Revenue
Provision for Taxes
Current Maturities on Long-Term Liabilities
___________________________
Current Liabilities (total of above)
Fixed Assets:
Plant, Property and Equipment
Less: Accumulated Depreciation
_________________________
Total Net Fixed Assets
Long-Term Liabilities
Deferred Taxes
___________________________
Total Liabilities
Stockholders Equity
Long-Term Investments
Intangible Assets
Miscellaneous
_________________________
Total Assets
Capital Stock
Paid-in Capital
Retained Earnings
Treasury Stock
__________________________
Total Liabilities and Equity
Assets = Liabilities + Stockholder’s Equity
5
Income Statement
Gross Sales
- returns and allowances
= Net Sales
- Cost of goods sold
= Gross Profit
- Expenses
Selling
General and Administrative
= Income from operations
+ Interest revenue
- Expense
= Net income before taxes
- Provisions for income tax
= Net Income
6
Statement of Cash Flows
•Statement consists of three basic parts:
•Cash flows from operating activities
•Cash flows from investing activities
•Cash flows from financing activities
•Change in cash is caused by cash flows generated
by or used by operations, investments and
financing activities of the company. The sum of
these three activities equals the change in the cash
on the balance sheet.
7
Statement of Cash Flows
•Inflow/Source
•Decrease in any
asset
•Increase in any
liability
•Increase in any net
worth
•Outflow/Use
•Increase in any asset
•Decrease in any liability
•Decrease in any net
worth
8
Common-size Analysis
•Overview
•Vertical analysis
•Horizontal analysis
•Income Statement
•Balance Sheet
9
CBA Exam Ratio Sheet
Revenue Growth/Decline
(Current Year Sales – Prior Year
Sales)/ Prior Year Sales
Return on Equity
Net Income/Equity
Return on Assets
Net Income /Assets
Gross Profit Margin
Gross Profit/Net Sales
Operating Profit Margin
Operating Profit/Net Sales
Net Profit Margin
Net Profit/Net Sales
Cash Flow Margin
Cash Flow from Operating
Activities/Net Sales
10
CBA Exam Ratio Sheet
Earnings Per Share
Net Earnings/Average Common Shares
Outstanding
Total Asset Turnover
Total Sales/Total Assets
Inventory Turnover
Cost of Goods Sold/Inventory
Inventory Carrying Period
AKA Days Inventory Held or
Days Inventory Outstanding
Inventory/(Cost of Goods Sold/360)
Accounts Receivable Carrying Period
AKA Days Sales Outstanding or
Average Collection Period
Accounts Receivable/(Sales/360)
11
CBA Exam Ratio Sheet
Accounts Payable Deferral Period
AKA Days Payable Outstanding
Accounts Payable/(Cost of Goods Sold/360)
Fixed Asset Turnover
Net Sales/Net Property, Plant, Equipment
Leverage
Total Assets/Equity
Debt to Equity
Total Debt/Stockholder’s Equity
Debt Ratio
Total Debt/Total Assets
Long-term Debt to Total
Capitalization
Long-term Debt/(Long Term Debt +
Stockholders’ Equity)
Long-term Debt to Net Working
Capital
Long-term Debt/(Current Assets – Current
Liabilities)
Times Interest Earned
Operating Profit/Interest Expense
12
CBA Exam Ratio Sheet
Working Capital
Current Assets – Current Liabilities
Cash Flow Liquidity Ratio
(Cash + Marketable Securities + CFOA*)/Current
Liabilities
Trade Cycle/Operating Cycle
(Inventory Carrying Period + Accounts
Receivable)/Carrying Period
Cash Conversion Cycle
(Inventory Carrying Period + Accounts
Receivable)/(Carrying Period – Accounts Payable
Deferral Period)
Current Ratio
Current Assets/Current Liabilities
Quick or Acid-Test Radio
(Current Assets – Inventory)/Current Liabilities
* Cash Flow from Operating Activities
13
Out of Court Settlement
•Extension Agreement
•Composition Agreement
•Assignment
14
Bankruptcy Acts
•Chapter 13
•Wage earner plan/small business
•Chapter 11
•Business reorganization
•Chapter 7
•Straight liquidation
•Chapter 9
•Municipalities and governmental units
•Chapter 12
•Family farm reorganization
15
Chapter 7 Liquidation Priorities
1. Secured Creditors
2. Administrative expenses
3. Unsecured claims for sales to a debtor-in-possession
4. Wages & compensation claims
5. Customer deposits
6. Taxes
7. Unfunded pension liability
8. Unsecured creditors
9. Preferred stockholders
10. Common stockholders
16