Basic Questions Regarding Financial Statement Analysis

Apr 3, 2011
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a) What is the difference between interest expense and interest payments of a company? In calculating Interest Coverage seems CFA materials suggests that interest coverage ratio is EBIT/ Interest payments.

b) For LIFO to FIFO Conversions :

Net Income (FIFO) = Net Income (LIFO) + Increase in LIFO Reserve *( 1- tax rate)

Retained Earnings (FIFO) = RE (LIFO) + LIFO Reserve *( 1- Tax rate) -------------------------(2)

(1) uses Change in LIFO Reserve while (2) used LIFO Reserve. Why is that? Why do we use LIFO Reserve instead of using Change in LIFO Reserve in equation (2).

c) I notice that sometimes we use Effective tax rate and sometimes we use statutory tax rate for Financial Statement Analysis calculation. As a rule, when to use which rate?

d) Why are there no tax savings from impairments until the impaired asset is sold or otherwise disposed of, although we do recognize impairment loss in income statement..wouldn't that inclusion of impairment loss in income statement result in tax savings?

e) For calculating aggregate accruals from Cash Flow they use Aggregate Accruals = Net Income - (CFO +CFI) Why don't they take out Cash Flow from financing activities as well along with CFO and CFI?

f) Is interest earned from credit sales reported as interest revenue?

g) What is Inventory (net) ? What is taken out from inventory that makes it net inventory?

I would really appreciate your help.


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