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Questions and Answers
Which of the following metrics is considered the most direct driver of a company's valuation?
Which of the following metrics is considered the most direct driver of a company's valuation?
- Market Sentiment
- Cost of Goods Sold
- Revenue Growth (correct)
- Operational Efficiency
When analyzing a company's financial statements, which document provides the most comprehensive overview of the company's revenue figures?
When analyzing a company's financial statements, which document provides the most comprehensive overview of the company's revenue figures?
- Cash Flow Statement
- Balance Sheet
- Statement of Retained Earnings
- Consolidated Income Statement (correct)
In financial analysis, what is the primary implication of a company consistently changing its revenue recognition policies?
In financial analysis, what is the primary implication of a company consistently changing its revenue recognition policies?
- It simplifies the process of auditing financial statements.
- It always indicates an attempt to manipulate financial results.
- It can significantly distort year-over-year revenue comparisons.
- It ensures compliance with evolving accounting standards. (correct)
When conducting a valuation analysis, why is it crucial to thoroughly investigate changes in a company's revenue recognition policies?
When conducting a valuation analysis, why is it crucial to thoroughly investigate changes in a company's revenue recognition policies?
According to contemporary accounting standards, which of the following aspects of revenue must companies disclose?
According to contemporary accounting standards, which of the following aspects of revenue must companies disclose?
What is the primary implication of export incentives being classified as 'Other Operating Revenue'?
What is the primary implication of export incentives being classified as 'Other Operating Revenue'?
In which scenario would interest income be classified as 'Operating Income' rather than 'Other Income'?
In which scenario would interest income be classified as 'Operating Income' rather than 'Other Income'?
What is the key adjustment an analyst should make when a company reports excise duty separately from revenues?
What is the key adjustment an analyst should make when a company reports excise duty separately from revenues?
What is the primary analytical challenge posed by companies that historically reported revenues 'gross' of sales scheme discounts but have switched to reporting 'net' of these discounts?
What is the primary analytical challenge posed by companies that historically reported revenues 'gross' of sales scheme discounts but have switched to reporting 'net' of these discounts?
When a company retroactively adjusts its previously reported revenue figures due to aggressive revenue recognition, what analytical action should investors take?
When a company retroactively adjusts its previously reported revenue figures due to aggressive revenue recognition, what analytical action should investors take?
In the context of revenue analysis, what does it imply when a company's standalone revenue is nearly identical to its consolidated revenue?
In the context of revenue analysis, what does it imply when a company's standalone revenue is nearly identical to its consolidated revenue?
To accurately assess individual business segment performance, what should an analyst do when a company's various subdivisions sell product to each other?
To accurately assess individual business segment performance, what should an analyst do when a company's various subdivisions sell product to each other?
In what scenario might significant related-party transactions not be inherently detrimental to a company?
In what scenario might significant related-party transactions not be inherently detrimental to a company?
If a company has a high percentage of revenue concentrated with few buyers, this could indicate they're dependent on that buyer. However, what nuance about structure of the industry could invalidate this
If a company has a high percentage of revenue concentrated with few buyers, this could indicate they're dependent on that buyer. However, what nuance about structure of the industry could invalidate this
Why should analysts take note of long-term contracts?
Why should analysts take note of long-term contracts?
In which scenario is it most important for an analyst to examine if the target company's plant is multipurpose vs dedicated?
In which scenario is it most important for an analyst to examine if the target company's plant is multipurpose vs dedicated?
Select the most accurate statement about sector performance based on the following sentence: Analyzing revenue, geography wise, provides a lot of insights regarding the new areas of growth a business may be trying to venture into.
Select the most accurate statement about sector performance based on the following sentence: Analyzing revenue, geography wise, provides a lot of insights regarding the new areas of growth a business may be trying to venture into.
Select the best answer for the question with reference to these pieces of text: 1. Structural shift towards alternative media platforms resulting in decline in print subscriptions. In the most basic sense: what are 'alternative media formats?'
Select the best answer for the question with reference to these pieces of text: 1. Structural shift towards alternative media platforms resulting in decline in print subscriptions. In the most basic sense: what are 'alternative media formats?'
Why should an analyst be careful to rely on interperiod growth measurements such as revenue cagr for certain industries?
Why should an analyst be careful to rely on interperiod growth measurements such as revenue cagr for certain industries?
You're examining the financial statements of a company that has sold 400 total units, and find that, according to best operating precedants 60% should have already earned revenue, and the rest still sit as inventory. What is this standard called?
You're examining the financial statements of a company that has sold 400 total units, and find that, according to best operating precedants 60% should have already earned revenue, and the rest still sit as inventory. What is this standard called?
Why do product mix ratios matter? (IE Manufactured goods over Trading goods)
Why do product mix ratios matter? (IE Manufactured goods over Trading goods)
Flashcards
Revenue
Revenue
A company's income/sales/turnover from its business operations during the year.
Revenue
Revenue
The only sustainable source for a company to generate cash for growth and survival.
Common Valuation Technique
Common Valuation Technique
Discounted value of future earnings.
Revenue Figures
Revenue Figures
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Revenue from Operations
Revenue from Operations
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Other Income
Other Income
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Excise Duty
Excise Duty
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Revenue Recognition (Sale of goods)
Revenue Recognition (Sale of goods)
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Revenue Measurement
Revenue Measurement
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Other Operating Revenue
Other Operating Revenue
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Excise Duty
Excise Duty
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Sale of Products
Sale of Products
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Accounting Policies section
Accounting Policies section
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Production fee
Production fee
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JD Revenues
JD Revenues
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Analysing figures always take prior year figures from,
Analysing figures always take prior year figures from,
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When
When
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Kaveri seed business
Kaveri seed business
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Checkpoint
Checkpoint
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Understand ?
Understand ?
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Financials always disclosed.
Financials always disclosed.
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Need a list?
Need a list?
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Important
Important
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Study Notes
Revenue in Financial Statements
- Revenue represents a company's income or sales generated from its business operations during a year.
- Revenue is a key factor that drives profit after deducting expenses and sustains a company's growth by providing sustainable cash flow.
- Company valuations often rely on the discounted value of future earnings, which is directly influenced by revenue performance.
Understanding Revenue Figures
- The process is as follows; understanding the presentation and calculation of revenue figures in financial statements from presented revenue versus actual revenues
- Knowing Various ways revenue is defined by a company and know the analytical aspects around revenue numbers.
Presentation & Calculation of Revenue
- Revenue figures can be from the consolidated income statement (entire company and subsidiaries)
- Revenue numbers can be found on a Standalone income statement (individual parent company)
- Consolidated figures only, or use standalone only.
Revenue Line Items (Hindustan Unilever Example)
- The income statement typically includes line items like "Revenue from Operations"
- Other income to arrive at "Total Income"
Banking Sector Example
- Revenue presentations differ across industries
- The Banking Industry presents revenue in a different format
HUL Case
- "Revenue from Operations," and "Other Income".
- For HUL, Revenue from Operations and Other Income is 47,028 + 410 = 47,438 Cr INR.
Understanding Revenue from Operations
- It is primarily from core business activities.
- Footnote shows details of what’s included and sums up to amount of 47,028 Crores for Hindustan Unilever in the 2021 accounts.
Components of Revenue from Operations
- Sales of Products and sales of Services and Others related to business Operations, and Scrap sales, export incentives
Sales Calculation
- Sales Price/ Contract price is the price the goods are sold at
- Minus deductions for trade and volume rebates
- Minus sales returns, taxes as duties
Trade Discounts
- Trade Discounts are discounts offered to retail customers
- Volume Rebates: Discounts for bulk purchases
- Cash Discounts: Discounts for full cash payments on the invoice date
Revenue Recognition
- Revenue recognizes the revenue from the sale of goods and when there aren’t any unfilled obligations
- Revenue is calculated after deducting any trade discounts, rebates, and taxes
Sales Returns
- Sales data is important but not discussed in this context: analysis of Inventory analysis is required
New accounting standards
- Under new accounting Revenue from Contract price that revenue from the Sales of products and services is 46,321 Crores from footnote 24 of the 2021 accounts
- Total product and service revenue is the sum of sale of products (46,269) + sale of services (52) = 46,321 Crores
Reconciliation Example
- Contracted Price should be $51,955
- Minus Trade discounts, volume rebates
- Plus Sale of products and sale of services
Other Operating Revenue
- Typically included within other operating expenses
- Items are included on the back of the operation and part of operating revenue.
Examples
- Export incentives are generated only on the back of a company’s operations in which it’s operating revenue
- Claims Received is an official request part of insurance or other legal claims
- Sales tax incentives, interest subsidy; part of operating revenue.
Other Income Considerations
- Non Operating Income is footnote
- Interest Income and Dividend Income are classified as such unless in banking/financial industry.
Hedging Gains
- Hedging gains, foreign exchange gains are part of Other operating revenue and be a Non-Operating income.
- Fair Value through Profit and Loss statement (FVTPL), is Non-Operating Income.
Reported Revenue
- Should reported Operating revenue also be taken as revenue for analysis? No.
- Excise Duty: Often included in revenue/ expenses so deduct Excise Duty so you can calculate Net Operating Revenues
Excise Tax Considerations
- Even after the GST, some companies pay state Excise duties
- Radico Khaitan reports after the GST and gross of Excise duty which must be taken out for equal comparison.
HUL Exception
- HUL is lucky meaning its quote of operating revenue happens to be its actual-operating revenue.
- Actual-operating revenue: footnote, you may need to adjust from nonoperating revenue
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