Financial Statements and Ratios
Key statements, formulas, and analyst ratios tested on the SIE.
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Questions Covered in This Set
10 cards to master
Balance sheet equation
Assets = Liabilities + Shareholders' Equity — a snapshot at a single point in time.
Book value per share formula
(Shareholders' equity − intangibles − preferred stock) ÷ common shares outstanding.
Working capital
Current assets − current liabilities; measures near-term liquidity.
Quick ratio (acid test)
(Current assets − inventory) ÷ current liabilities; inventory is removed because it may not sell quickly.
Which statement covers a period rather than a moment?
The income statement (and the statement of cash flows); the balance sheet is a snapshot 'as of' a date.
Order of payment on the income statement
Bond interest is deducted before taxes; preferred dividends are paid after taxes — that's why debt is cheaper financing.
Why is depreciation added back in the operating section of cash flows?
It reduces reported earnings but is a non-cash charge — no cash actually leaves the company.
Three sections of the statement of cash flows
Operating (day-to-day), investing (buying/selling assets or securities), financing (issuing stock/bonds, repaying debt, dividends).
Debt-to-equity vs. bond ratio
Debt-to-equity = long-term debt ÷ shareholders' equity; bond ratio = long-term debt ÷ total capitalization.
P/E ratio and what it signals
Market price ÷ EPS. High P/E suggests growth expectations or overvaluation; low P/E suggests value or trouble.
