BAR — Business Analysis & Reporting: CHEAT SHEET

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FINANCIAL STATEMENT ANALYSIS

Liquidity Ratios

Activity/Efficiency Ratios

Cash Conversion Cycle: Days in Inventory + DSO − Days Payable Outstanding (lower is better)

Leverage Ratios

Profitability Ratios

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DuPont Analysis (ROE Decomposition)

`` ROE = Net Margin × Asset Turnover × Equity Multiplier = (NI/Sales) × (Sales/Assets) × (Assets/Equity) `

🚩 High ROE from leverage alone = red flag (no fundamental improvement)

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COST CONCEPTS & CVP

Cost Behavior

High-Low Method (separate mixed costs): ` Variable rate = (High cost − Low cost) / (High activity − Low activity) Fixed = Total − (Variable rate × Activity) `

Contribution Margin Analysis

` CM = Sales − Variable Costs CM Ratio = CM / Sales Break-Even (units) = Fixed Costs / CM per unit Break-Even ($) = Fixed Costs / CM Ratio Margin of Safety = Actual Sales − Break-Even Sales `

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BUDGET TYPES & VARIANCE ANALYSIS

Budget Sequence

Sales → Production → Materials/Labor/OH → Operating Income → Capital/Cash → Pro-forma Balance Sheet

Flexible budget > Static budget for variance analysis (adjusts for actual activity)

Key Variances

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CAPITAL BUDGETING

When NPV ≠ IRR conflict: Choose NPV (measures absolute value added)

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WACC & CAPM

WACC (discount rate for NPV): ` WACC = (E/V × Ke) + (D/V × Kd × (1−Tc)) `

• E/V = equity weight; D/V = debt weight

• Kd is tax-deductible → after-tax adjustment

CAPM (estimate Ke): ` Ke = Rf + β(Rm − Rf) `

• Rf = risk-free rate (Treasury)

• β = systematic risk; >1 = more volatile than market

• (Rm − Rf) = market risk premium

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BUSINESS COMBINATIONS (ASC 805)

Acquisition method (required for all combinations):

` Goodwill = Consideration + FV(NCI) + FV(Previously Held Equity) − FV(Net Identifiable Assets) ``

Key points:

• All identifiable assets/liabilities → fair value (including contingent liabilities, IPR&D)

• Bargain purchase → gain recognized if price < FV of net assets

• Acquisition costs → expensed immediately (NOT capitalized)

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CONSOLIDATION (ASC 810) & EQUITY METHOD (ASC 323)