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WallStreetPrepRedbookAccounting:
FinancialStatementAnalysis 1.
:
directcostsassociatedwiththecompany'srevenuegeneration(e.g.,directmaterials, directlabor).
NetProfitMargin:Thepercentageofaccrualprofitabilityremainingafterallexpenses
havebeensubtracted.Unlikeoperatingmargin,thismeasureisimpactedbycapital structureandtaxes 2.Line":Ifaprofitabilitymetricis"abovetheline,"itreflectsacompany'soperational performancebeforenon-operationalitemssuchasinterestandtaxes Wall Street Prep Redbook Accounting Financial Statement Analysis.pdf file:///C:/Users/HP/Desktop/New%20folder%20(2)/Wall%20Street%20...
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Incontrast,profitabilitymetrics"belowtheline"haveadjustedoperatingincomefor non-operatingincomeandexpenses,whichareitemsclassifiedasdiscretionaryand unrelatedtothecoreoperationsofabusiness 3.D&A,typicallythelargestnon-cashexpense,itdoesn'tcapturethefullcashimpact ofcapitalexpenditures("capex")orworkingcapitalchangesduringtheperiod.***Despitethecriticismregardingitsdrawbacks,EBITDAremainsthemostwidely usedproxyforoperatingcashflowinpractice*** 4.includelegalsettlements(gainorloss),restructuringexpenses,inventory write-downs,orassetimpairments.Oftencalled"scrubbing"thefinancials,theactof adjustingforthesenon-recurringitemsismeanttonormalizethecashflowsand depictacompany'strueoperatingperformance. Wall Street Prep Redbook Accounting Financial Statement Analysis.pdf file:///C:/Users/HP/Desktop/New%20folder%20(2)/Wall%20Street%20...
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5.
addedback?:
theindustry.Inmanycases,it'sadiscretionarydecisiononwhetheranexpenseisa partofthenormaloperationsofacompany.Forexample,expensesrelatedto litigationmightnotbeaddedbackforaresearchanddevelopment(R&D)oriented pharmaceuticalcompany,giventheprevalenceoflawsuitsintheindustry 6.
:
markets,enhancingitssales&marketingstrategies,improvingitsproduct/service mix,orintroducingnewproducts.Thefocusisoncontinuouslymakingoperational improvementsandbringinginrevenue(e.g.,setpricesmoreappropriatelypost-mar- ketresearch,targetrightendmarkets). Wall Street Prep Redbook Accounting Financial Statement Analysis.pdf file:///C:/Users/HP/Desktop/New%20folder%20(2)/Wall%20Street%20...
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