CIFHA cheat sheet

Balance sheet identity: Assets = Liabilities + Equity; every transaction preserves this equality.

Income statement flows to equity via retained earnings: ending RE = beginning RE + net income − dividends.

Accrual basis recognizes revenue when earned and expenses when incurred, not when cash moves.

Three core statements articulate: net income closes to retained earnings; ending cash on the cash flow statement equals the balance sheet cash line.

Common-size analysis expresses income statement items as % of revenue and balance sheet items as % of total assets.

Vertical analysis compares items within one period; horizontal analysis compares the same item across periods as a % change.

Goodwill is recorded only on acquisition as purchase price less fair value of identifiable net assets; it is not amortized but tested for impairment.

Revenue recognition under ASC 606/IFRS 15 follows five steps: contract, performance obligations, transaction price, allocation, and recognition on satisfaction.

Current ratio = current assets / current liabilities; a value below 1.0 signals reliance on long-term or new financing for short-term obligations.

Quick ratio = (cash + marketable securities + receivables) / current liabilities; excludes inventory and prepaids.

Cash ratio = (cash + cash equivalents) / current liabilities; the most conservative short-term liquidity test.

Interest coverage = EBIT / interest expense; below 1.5x indicates limited cushion for debt service.

Debt-to-equity = total liabilities / total equity; above 2.0x generally indicates elevated leverage.

Z-score (Altman, public manufacturers): 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5, where X1=WC/TA, X2=RE/TA, X3=EBIT/TA, X4=MVE/TL, X5=Sales/TA; below 1.81 is distress zone.

Working capital = current assets − current liabilities; negative values indicate short-term funding gap.

Net debt = total debt − cash and cash equivalents; used with EBITDA to gauge leverage (net debt/EBITDA).

Return on equity (DuPont): ROE = net profit margin × asset turnover × equity multiplier.

Asset turnover = revenue / average total assets; measures how efficiently assets generate sales.

Gross margin = (revenue − COGS) / revenue; declining trend signals pricing pressure or input cost inflation.

Days sales outstanding (DSO) = (accounts receivable / revenue) × 365; rising DSO indicates slower collections.

Days inventory outstanding (DIO) = (inventory / COGS) × 365; days payable outstanding (DPO) = (accounts payable / COGS) × 365.

Cash conversion cycle = DIO + DSO − DPO; a shorter cycle frees working capital.

Trend analysis requires at least three periods to distinguish a trend from a one-period fluctuation.

Ratio comparisons are meaningful only against the same industry, accounting policy, and fiscal period.

Operating cash flow (indirect method) = net income + non-cash charges (D&A, impairments) ± changes in working capital.

Free cash flow = operating cash flow − capital expenditures.

Cash flow from investing covers capex, acquisitions, and asset sales; financing covers debt, equity, and dividends.

Operating cash flow persistently below net income suggests aggressive accruals or receivables buildup.

Cash flow adequacy ratio = operating cash flow / (capex + dividends + debt repayments); below 1.0 indicates external funding dependence.

Liquidity sources include cash, undrawn committed credit lines, and expected operating cash inflows.

A company can be profitable on an accrual basis yet insolvent if cash conversion lags obligations.

Five Cs of credit: Character, Capacity, Capital, Collateral, Conditions.

Credit spread compensates for default probability, loss given default, and liquidity risk.

Expected loss = probability of default × loss given default × exposure at default.

Covenants may be maintenance-based (tested each period) or incurrence-based (tested on a triggering event).

Liquidity risk is the risk of being unable to meet obligations as they fall due without incurring unacceptable losses.

Duration measures a bond's price sensitivity to interest rate changes: ΔP ≈ −duration × Δy × P.

Concentration risk arises when exposure is heavily weighted to one counterparty, sector, or geography.

Stress testing applies adverse but plausible scenarios to assess capital and liquidity adequacy.

Percentage-of-sales method forecasts spontaneous items (receivables, inventory, payables) as a fixed share of projected revenue.

External financing need = projected asset increase − spontaneous liability increase − addition to retained earnings.

Addition to retained earnings = projected net income × (1 − dividend payout ratio).

Sustainable growth rate = ROE × (1 − dividend payout ratio); the growth rate achievable without new external equity.

Pro forma statements build projected income statement, balance sheet, and cash flow in that sequence.

Sensitivity analysis varies one input at a time; scenario analysis varies multiple inputs coherently.

Sensitivity of cash flow to sales can be estimated from the degree of operating leverage: DOL = %ΔEBIT / %Δsales.