AGECON 1003 Fannin Exam 3
Operating Expenses
are the general costs of operating and administering the business, outside of the direct cost of goods sold
Current Assets
either cash now or will turn into cash very quickly
Activity Ratio Problem
gives a general measure of the efficiency of the firm: Inventory turnover = cost of goods sold/inventory level, Accounts receivable turnover = credit sales/accounts receivable, Accounts payable turnover = purchases on credit/accounts payable
Comparative Statement Analysis
manages change over time and against industry averages and benchmarks
Net Present Value
uses the time value of money concepts, investments with a positive NPV are profitable
Compounding
what money put into a savings account today will be worth at a future date
Cost of Goods Sold (COGS)
represents the direct costs to business of just goods that are sold this period
Balance Sheet Accounting Equation
Assets = Liabilities + Equity
Capital Budgeting Decision
Evaluating profitability of potential investments by firm in new property, plant, and equipment
Reasons to Hold Inventory
Matching supply with demand, prevent stockout, lower purchasing costs
Profitability Ratio Problem
ROI = Profit before tax/total assets, Return on owners equity = Profit before taxes/owners equity, Profit as percentage of sales ratio = profit before taxes/total sales
Purpose and Financial Objectives
Purpose: an accurate picture of firms current profitability, an estimate of firms current and future financial position, input to firms management information system, an accurate record of past financial performance; Objectives: Profits-is the margin between total business receipts and total business expenses, Liquidity-refers to the ability of the business to meet its cash commitments in a timely fashion, Solvency-a business is solvent if total assets exceed total liabilities
Explicit Costs
Those costs which are generally for direct purchases of inputs and services which are directly traceable 1.Labor 2.Production 3.Materials
Solvency Ratio Problem
debt to equity = total debt/owners equity, times interest earned = income before taxes & interest expense/interest expense
Current Liabilities
describe claims that are due within the normal operating cycle, normally one year
Liquidity Ratio Problem
determines in the firm has sufficient cash to pay bills on time: Current ratio = current assets/current liabilities
Discounting
how much money do I have to put into a savings account today to have a certain amount at a specific time in the future
Annuity Definition
is the sum of discount factors for a series of equal payments over a period of time
Contribution (including Contribution formula)
is what is available for paying overhead and profit; Contribution = Selling price/Unit - Variable Cost/Unit
Owner's Equity
represents money left for the owner of the business should the assets be sold & all liabilities paid as of the date of the balance sheet.
Net Working Capital (Including Sources and Uses)
tells managers where the firm gets its money from and how they are spending it, Sources: fixed assets sale, investments sales, long-term loans take, stock sale, depreciation, profits. Uses: dividend payment, fixed assets purchase, investments purchase, long term repayment, stock retirement
Opportunity Costs
the loss of potential gain from other alternatives when one alternative is chosen