Exam 1: Chapters 1- 4
Cash Flow From Assets (formula 2)
OCF - Net Capital Spending - Changes in NWC
Equity Multiplies
1 + (Total Debt / Total Equity )
Inventory Turnover
COGS / Inventory
Total Assets
Cash + A/R + Inventory + Net Fixed Assets
A firm has total assets of $638,727, current assets of $203,015, current liabilities of $122,008, and total debt of $348,092. What is the debt-equity ratio?
Debt-equity ratio = $348,092 / ($638,727 - 348,092) = 1.20
Times interest Earned
EBIT / Interest
Net working capital decreases when:
a dividend is paid to current shareholders.
By definition, a bank that pays simple interest on a savings account will pay interest:
only on the principal amount originally invested.
price - earning ratio
price per share/earnings per share
Price - sales ratio
price per share/sales per share
Total asset turnover
sales / total assets
If a firm has an inventory turnover of 15, the firm:
sells its entire inventory an average of 15 times each year.
The matching principle states that:
the costs of producing an item should be recorded when the sale of that item is recorded as revenue.
Days Account Receivable
365 / account receivable turnover
Days in Inventory
365/inventory turnover
The Green Carpet has current liabilities of $72,100 and accounts receivable of $107,800. The firm has total assets of $443,500 and net fixed assets of $323,700. The owners' equity has a book value of $191,400. What is the amount of the net working capital?
Net working capital = $443,500-323,700 -72,100 = $47,700
Delmont Movers has a profit margin of 7.1 percent and net income of $63,700. What is the common-size percentage for the cost of goods sold if that expense amounted to $522,600 for the year?
COGS common-size percentage = $522,600 / ($63,700 / .071) = .5825, or 58.25 percent
Cash Ration
Cash / Current Liabilities
Cash Flow From Assets (formula 1)
Cash Flow from Creditors + Cash Flow From Stockholders
Wilberton's has total assets of $537,800, net fixed assets of $412,400, long-term debt of $323,900, and total debt of $388,700. If inventory is $173,900, what is the current ratio?
Current ratio = ($537,800 - 412,400) / ($388,700 - 323,900) = 1.94
Leon is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due.
Quick Ratio
The primary goal of financial management is most associated with increasing the:
market value of the firm
Cash Coverage
(EBIT + Depreciation) / Interest
The total tax paid divided by the total taxable income
Average Tax Rate
It takes K's Boutique an average of 53 days to sell its inventory and an average of 16.8 days to collect its accounts receivable. The firm has sales of $942,300 and costs of goods sold of $692,800. What is the accounts receivable turnover rate? Assume a 365-day year.
Accounts receivable turnover = 365 / 16.8 = 21.73
Andersen's Nursery has sales of $318,400, costs of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 35 percent. The firm paid out $23,400 in dividends. What is the addition to retained earnings?
Addition to retained earnings = [($318,400 -199,400 -28,600 -1,100)(1 -.35)] - $23,400 Addition to retained earnings = $34,645
Which one of the following situations is most apt to create an agency conflict?
Basing management bonuses on the length of employment
For the past year, LP Gas, Inc., had cash flow from assets of $38,100 of which $21,500 flowed to the firm's stockholders. The interest paid was $2,300. What is the amount of the net new borrowing?
Cash flow to creditors = $38,100 -21,500 = $16,600 Net new borrowing = $2,300 - 16,600 = -$14,300
The Underground Cafe has an operating cash flow of $187,000 and a cash flow to creditors of $71,400 for the past year. The firm reduced its net working capital by $28,000 and incurred net capital spending of $47,900. What is the amount of the cash flow to stockholders for the last year?
Cash flow to stockholders = [$187,000 - 47,900 -(-$28,000)]- $71,400 = $95,700
Lester had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as:
Compound Interest
Quick Ratio
Current Assets - Inventory/ Current Liabilities
Current Ration
Current Assets/ Current Liabilities
A fire has destroyed a large percentage of the financial records of the Strongwell Co. You have the task of piecing together information in order to release a financial report. You have found the return on equity to be 13.8 percent. Sales were $979,000, the total debt ratio was .42, and total debt was $548,000. What is the return on assets?
Debt-equity ratio = .42/(1 -.42) = .72414 Return on assets = .138/(1 + .72414) = .0800, or 8.00 percent
Dixie's sales for the year were $1,678,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $1,141,000, $304,000, and $143,000, respectively. In addition, the company had an interest expense of $74,000 and a tax rate of 34 percent. What is the operating cash flow for the year?
EBIT = [($1,678,000 -1,141,000 -304,000 -143,000 = $90,000 Tax = ($90,000 -74,000) ×.34 = $5,440 OCF = $90,000 + 143,000 -5,440 = $227,560
Change in NWC
Ending NWC - Beginning NWC
Change in Net Working Capital
Ending NWC - Beginning NWC
Present Value
FV/(1+r)^n or FV * (1/1+r)^n
A firm has earnings before interest and taxes of $27,130, net income of $16,220, and taxes of $5,450 for the year. While the firm paid out $31,600 to pay off existing debt it then later borrowed $42,000. What is the amount of the cash flow to creditors?
Interest = $27,130 -16,220 -5,450 = $5,460 Cash flow to creditors = $5,460 + 31,600-42,000 = -$4,940
Ben invested $7,500 twenty years ago with an insurance company that has paid him 6 percent simple interest on his funds. Charles invested $7,500 twenty years ago in a fund that has paid him 6 percent interest, compounded annually. How much more interest has Charles earned than Ben over the past 20 years?
Interest on interest = $7,500 ×(1 + .06)20- [$7,500 + ($7,500 ×.06 ×20)] = $7,553.52
The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the
Marginal tax Rate
OCF
NOI + Depreciation + Interest
Future Value
PV(1+r)^n
KBJ has total assets of $613,000. There are 21,000 shares of stock outstanding with a market value of $13 a share. The firm has a profit margin of 6.2 percent and a total asset turnover of 1.08. What is the price-earnings ratio?
Price-earnings ratio = $13 /{[.062 ×($613,000 ×1.08)]/21,000} = 6.65
Mercier United has net income of $128,470. There are currently 32.67 days' sales in receivables. Total assets are $1,419,415, total receivables are $122,306, and the debt-equity ratio is .40. What is the return on equity?
Return on equity = ($128,470/$1,419,415) ×(1 + .40)] = .1267, or 12.67 percent
The Saw Mill has a return on assets of 7.92 percent, a total asset turnover rate of 1.18, and a debt-equity ratio of 1.46. What is the return on equity?
Return on equity = .0792 ×(1 + 1.46) = .1948, or 19.48 percent
A firm has net income of $197,400, a return on assets of 8.4 percent, and a debt-equity ratio of .72. What is the return on equity?
Return on equity = .084 ×(1 + .72) = .1445, or 14.45 percent
Account Receivable Turnover
Sales / Accounts Receivable
Total Equity
Total Assets - A/P - Long Term Debt
Debt to Equity Ratio
Total Debt / Total Equity
Total Debt Ratio
Total Debt/ Total Assets
Highly liquid assets:
can be sold quickly at close to full value.
NWC
current assets - current liabilities
Net Working Capital (NWC)
current assets - current liabilities
Lucas expects to receive a sales bonus of $7,500 one year from now. The process of determining how much that bonus is worth today is called:
discounting
Cash flow to stockholders is defined as:
dividends paid - net new equity raised
Net Capital Spending
ending net fixed assets - beginning net fixed assets + depreciation
Net capital spending is equal to:
ending net fixed assets - beginning net fixed assets + depreciation.
Common-size Percentage of Equity
equity/total assets
Cash flow to creditors is defined as:
interest paid - net new borrowing
Blythe Industries reports the following account balances: inventory of $417,600, equipment of $2,028,300, accounts payable of $224,700, cash of $51,900, and accounts receivable of $313,900. What is the amount of the current assets?
Current assets = $51,900 + 313,900 + 417,600 = $783,400
Dockside Warehouse has net working capital of $42,400, total assets of $519,300, and net fixed assets of $380,200. What is the value of the current liabilities?
Current liabilities = $519,300 -380,200 -42,400 = $96,700
Galaxy Sales has sales of $938,300, cost of goods sold of $764,500, and inventory of $123,600. How long on average does it take the firm to sell its inventory?
INV TURNOVER = COGS / INV = 764,500 / 123,600 INV TURNOVER = 6.18 DAYS SALES IN INV = 365 / 6.18 = 59.01 days
ROE
NOI / Equity
Profit Margin
NOI / Net Sales
Earnings- per- share
NOI /Shares
Outdoor Sports paid $12,500 in dividends and $9,310 in interest over the past year. Sales totaled $361,820 with costs of $267,940. The depreciation expense was $16,500 and the tax rate was35 percent. What was the amount of the operating cash flow?
NOI = 361,820 - 267,940 - 9,310 - 16500 = 68,070 = 68,070 *(.35) = 23,824.50 = 68,070 - 23,824.50 NOI = 44,245.60 OCF = NOI + DEP + INT OCF = 44,245.60 + 16,500 + 9130 OCF = 70,055.5 ~ 70,056
ROA
NOI/ Assets
Dupont ROE
Net Profit Margin x ROA x (1 + debt-equity ratio) if PM is not there then its just ROA x (1+ debt-equity ratio)
Marcie's has sales of $179,600,depreciation of $14,900, costs of goods sold of $138,200, and other costs of $28,400. The tax rate is 35 percent. What is the net income?
Net income = ($179,600 -138,200 -28,400 -14,900)(1 -.35) = -$1,235
Deep Sea Fisheries has current liabilities of $238,620, net working capital of $42,580, inventory of $262,750, and sales of $1,941,840. What is the quick ratio?
Quick ratio = ($42,580 + 238,620 - 262,750) / $238,620 = .08
Profit Margin
net income/net sales