CFA Level I · Cheat Sheet
| Component | Formula | What It Measures | |
| Gross Profit Margin | (Revenue − COGS) / Revenue | Production efficiency (pre-overhead) | |
|---|---|---|---|
| Operating Profit Margin | EBIT / Revenue | Operational efficiency | |
| Net Profit Margin | Net Income / Revenue | Bottom-line profitability | |
| Basic EPS | (NI − Preferred Div) / Weighted Avg Shares | Earnings per common share | |
| Diluted EPS | (NI − Preferred Div) / (Shares + Dilutive Securities) | EPS assuming conversion of options/convertibles | |
| Item | Treatment | Rationale | |
| Discontinued Operations | Report separately below continuing ops, net of tax | Isolate ongoing business performance | |
| Restructuring Charges | Exclude from core earnings | Often recur despite "one-time" label | |
| Gains/Losses on Asset Sales | Exclude from core earnings | Non-operational, inflates/deflates earnings | |
| Extraordinary Items | No longer separately classified under current GAAP | Treats as normal operations | |
| Current Assets (< 1 yr) | Non-Current Assets | Current Liabilities | Non-Current Liabilities |
| Cash & equivalents | PP&E (net) | Accounts payable | Long-term debt |
| Receivables | Intangibles, Goodwill | Accrued liabilities | Deferred tax liabilities |
| Inventory | LT investments | Current portion LT debt | Pension obligations |
| Prepaid expenses | Deferred revenue | ||
| Component | Definition | ||
| Common Stock (par value) | Nominal per-share value | ||
| Additional Paid-in Capital (APIC) | Amount received above par on stock issuance | ||
| Retained Earnings | Cumulative NI − dividends; RE Bridge: Ending RE = Beginning RE + NI − Dividends | ||
| Treasury Stock | Repurchased shares (contra-equity, reduces total equity) | ||
| Accumulated Other Comprehensive Income (AOCI) | Unrealized gains/losses on investments, FX translation, pension adjustments (bypasses I/S) | ||
| Metric | Formula | Interpretation | |
| Book Value per Share | (Total Equity − Preferred Equity) / Common Shares Outstanding | Accounting value per share | |
| Price-to-Book (P/B) | Market Price per Share / Book Value per Share | High P/B → expected ROE > cost of equity | |
| Item | U.S. GAAP | IFRS | |
| R&D Costs | All expensed as incurred (ASC 730) | Research expensed; development capitalized if criteria met (IAS 38) | |
| Goodwill Amortization | Not amortized; annual impairment test | Not amortized; annual impairment test | |
| Inventory Valuation | LIFO allowed | LIFO prohibited | |
| Extraordinary Items | Rarely separate disclosure | Not separately classified | |
| Revaluation of Fixed Assets | Generally not allowed | Allowed (at fair value) | |
| Concept Pair | Distinction | ||
| Accrual vs. Cash Accounting | Accrual: revenue when earned, expense when incurred (required for public cos). Cash: only when cash changes hands. | ||
| Matching Principle | Expenses recognized in same period as related revenues. | ||
| Basic vs. Diluted EPS | Basic excludes dilutive securities; diluted includes options, warrants, convertible debt. Diluted always ≤ basic. | ||
| Goodwill vs. Other Intangibles | Goodwill: excess purchase price, NOT amortized, impairment tested annually. Other intangibles: may be amortized if finite life. | ||
| Deferred Tax Asset vs. Liability | DTA: tax benefit from future deductions (book expense > tax expense). DTL: future tax payment owed (book income < taxable income). |
✓ Compare reported vs. core earnings ✓ Watch DSO trends (rising = potential revenue recognition risk) ✓ Identify & adjust non-recurring items ✓ Scrutinize accounting policy changes ✓ Examine deferred revenue & reserves ✓ Check consistency of estimates (bad debts, obsolescence, useful lives) ✓ Assess reasonableness of accruals vs. cash flows
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``` Net Income = (Revenue − COGS − OpEx − D&A − Interest) × (1 − Tax Rate)
Retained Earnings (end) = Retained Earnings (beg) + NI −
Aligned to the CFA Institute Level I curriculum.
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