Principes for revenue recognition
It has to be earned : cash, claims to the cash or assurance that cash will be received.
It has to be realized : delivery of goods or service rendered
Cash Flow Statement of the Audi Group
Have they been able to finance their investment with cash generated by business operation
If not what type of external financing have they used ?
If yes what did they do with the excess cash ?
Make comments on the cash position of these companies.
Gearing ratio
Long debt/Long term financing
Interest cover : ebit/interest expenses
If <3 too low, >5 good, >15 excellent
In US you can have negative equity, in France, not possible.
Basic EPS = net profit/ number of ordinary shares
Diluted EPS = net profit / Number of ordinary shares + preferred shares + stock options
Limitation of ratio analysis
- Inflation not taken in account
- Restricted vision : don’t take in account loyalty of customers, etc
- Balance sheet is just a photo at a certain time.
- …
Gross margin :
If decreases : a reduction in selling prices, less sales, increase in cogs, increase in transportation. Stock
losses, increase in wages (direct costs).
ROI gives the overall return on all of the capital.
Impairment test
Pfizer, Novartis
General comments
Industry in which the company operate
Competitive position
Products
Trend in sales
GAAPs followed
Currency used
Closing accounting date
Specific events