FNCE 300

Nikki Heart Photography has total assets of $31,300, long-term debt of $8,600, net fixed assets of $25,600, and owners' equity of $20,540. What is the value of the net working capital?

$3.540

Gracie Art Gallery has total assets of $236,450, net working capital of $28,523, owners' equity of $128,659, and long-term debt of $105,000 What is the value of the current assets?

$31,314

Income Statement

-Net Sales -COGS -Depreciation -Earnings before interest and taxes -Interest paid -Taxable income -Taxes NET INCOME -amount of dividends to be paid -addition to R.E.

Payables Ratios

-Payables turnover: COGS/AP -Days' Costs in Payables: 365/Payables Turnover

Probability Ratios

-Profit Margin: NI/Sales Return on Assets (RDA): NI/TA Return on Equity (ROE): NI/TE

Balance sheet

-TA on the left TL & E on the right

Financila Leverage Ratios

-Total Debt ratio=(TA-TE)/TA -Debt/Equity: TD/TE -Equity Multiplier: TA/TE

Investmetns

-Work with financial assets such as stocks and bonds -Value of financial assets, risk versus return, and asset allocation.

Corporation

-adv: -limited liability -unlimited life -separation of ownership and management -transfer of ownership is easy -easy to raise capital Disv: -separation or ownership and management -double taxation

Common size balance sheets

-all accounts = percent of total assets (%TA)

Ratio Analysis

-allow for better comparison through time -What the ratio is trying to measure and why is it important

Book Value

-balance sheet value of the A,L, and E -when BV>MV then the stock is overvalued (sell the stock)

Business finance

-can help decide what to do with capital budgeting (what investments should the business take over) -capital structure (how we should pay our assets) -Working-capital management

Peer Group Analysis

-compare to similar companies or within industries

Standardized financial statements

-comparing financial information year-to-year -comparing companies of different sizes, particular with the same industry

Agency problem

-conflict of interest between principle and agent

External uses

-creditors, suppliers, customers, stockholders

Managerial Compensatioin

-incentives can be used to align management and stockholder interest -incentives need to be carefully structured to ensure that they achieve their goal

Net new borrowing

-long-term debt (ending -beginning)

Goal of financial management

-maximize the current value per share of the company's existing stock -maximize the market value of the existing owner's equity

Partnership

-more capital available -relatively easy to start -income taxed once as personal income Disv: -unlimited liability -partnership dissolves when one partner dies or wishes to sell -difficult to transfer ownership

Cash Flow

-one of the most important pieces of information that can be derived from financial statements

Agency relashionship

-principles hires an agent to represent its interest -stockholders ( principals) hire managers (agents) to run the company

Liquidity

-speed and ease of conversion to cash without significant loss of value -valuable in avoiding financial distress

Corporate Control

-threat of a takeover may result in better management

Market Vlaue

-true value, the price at which the A, L, or E can actually be bought or sold -when MV>BV then the stock is undervalued (buy the stock)

The financial statement that summarizes a firm's accounting value as of a particular date is called the

Balance sheet

Financial Markets

Primary market: -for the first issues ( if a firm chooses to buy 100 shares) Secondary Markets: -for existing issues (if a firm chooses to sell those 100 shares)

DuPont Identity

ROE: (NI/Sales)*(Sales/TA)*(TA/TE) = NI/TE

Asset Management

Receivables Turnover: Sales/AR Day's Sales in Receivables: 365/Receivables Turnover

A private placement is most apt to involve:

a life-insurance company.

Retention ratio ("b")

addition to R.E/Net income

common size income state

all line items = percent of sales or revenue

Probably the least effective means of aligning management goals with shareholder interests is:

automatically increasing management salaries on an annual basis.

Security dealers:

buy and sell from their own inventory.

Which one of the following functions is generally a responsibility assigned to the corporate treasurer?

capital expenditures

Nishaa has been promoted and is now in charge of all external financing. In other words, she is in charge of:

capital structure management

Net working capital is defined as

current assets minus current liabilities

Cash flow to stockholders is defined as

dividends paid minus net new equity raised

Net capital spending is equal to

ending net fixed assets minus beginning net fixed assets plus depreciation

The primary goal of financial management is most associated with increasing the:

firm's market value

When conducting a financial analysis of a firm, financial analysts:

frequently use accounting information

Corporate shareholders:

have the ability to change the corporation's bylaws.

Time Straighten Analysis

how the first performance is changing through time, both internal and external

The accounting statement that measures the revenues, expenses, and net income of a firm over a period is called the:

income stmt

Cash flows to creditors is defined as

interest paid minus net new borrowing

Shareholder's equity is equal to

net fixed assets minus long-term debt plus net working capital

internal uses

performance evaluation - compensation and comparison between divisions =Planning for the future - guide in estimating future cash flows

Limited liability companies are primarily designed to:

provide limited liability while avoiding double taxation.

Benchmarking

ratios need to compared to something

Which one of the following is an intangible fixed asset

Copyright

Liquidity rations

Current Ratio: CA/CL Quick Ratio: (CA-Inventory)/CL -take out inventory because it is the least liquid Cash Ratio: Cash/CL -

Pacheo's Market had long-term debt of $638,100 at the beginning of the year compared to $574,600 at year-end. If the interest expense was $42,300, what was the firm's cash flow to creditors?

$105,800

Porter Jewelers, a sole proprietorship has a marginal tax rate of 32 percent and an average tax rate of 20.9 percent. If the firm owes $34,330 in taxes, how much taxable income did it earn?

$164,258

The Riverside Cafe has an operating cash flow of $83,770, a depreciation expense of $43,514, and taxes paid of $21,590. A partial listing of its balance sheet accounts is as follows: Beg Balance Ending Balance Current assets $ 138,590 $ 129,204 Net fixed as 599,608 597,913 Current liab 143,215 139,827 Long-term dbt 408,660 402,120 What is the amount of the cash flow from assets?

$47,949

Taxes

-Marginal tax rate: % tax paid on the next dollar earned -Average tax rate: total taxes paid/ taxable income

National Importers paid $38,600 in dividends and $24,615 in interest over the past year while net working capital increased from $15,506 to $17,411. The company purchased $38,700 in net new fixed assets and had depreciation expenses of $14,784. During the year, the firm issued $20,000 in net new equity and paid off $23,800 in long-term debt. What is the amount of the cash flow from assets?

$67,015

Net new equity

-Common stock and paid in surplus (ending-beginning)

Areas of Finance

-Corporate/Business finance -Investments -Financial institutions -Institutional Finance

Limited Liability Company vs Limited Liability Partnership

-LLC's are created with members that are not personally liable for the company's debts -LLP is usually structured with protection for the partner's personal assets. Can ensure that not all partners have personal liability for the acts of other partners.

Operating Cash Flow

=Earnings before interest & tax + depreciation - taxes

Cash flow from assets

=Operating Cash Flow - Net capital spending - change in Net working capital =(2nd method) Cash flows to creditors + Cash flow to stockholders

Sole Propietorship

Adv: -east to start -least regulated -single owner gets all profit and only taxed one at person income tax Dis: -limited life to owner -equity capital is limited to owner's personal wealth -unlimited liability -difficult to sell ownership

International Finance

Area of specialization within each of the areas discussed so far.

Which one of the following terms is defined as the total tax paid divided by the total taxable income?

Average tax rate

Net Working Capital

CA-CL -if it is greater than 1 then that means it is positive financially -net working capital is positive

Dividend payout ratio(1-"b")

Cash dividends/Net income

Financial Insitutions

Companies that special in financial matters -Banks -Insurance companies -Brokerage firms

Working capital management includes which one of the following?

Determining which customers will be granted credit

Market Value Ratios

Earning per share=EPS -> NI/number of shares outstanding PE ratio= Price per share/Earnings per share Price/Sales Ratio: PPS/Sales per share Market-to-book ratio: NI/TE

Which one of the following is a capital structure decision?

Establishing the preferred debt-equity level

Generla vs. limited partnership

General partners have unlimited liability for all partnership debts -Limited partners are to only the amount of money or property that they invest

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

Limited partnership

Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n):

Stakeholder

Suppose you are single and your personal taxable income is $100,000.

Tax Bill: .10*14,200 .12*54200-14200 .22*86350-54200 .24*1000000-86350 -all up all these numbers you get tax bill of $16,569 Average Tax: 16569/100000= 16.57% Marginal Tax: 24% (next dollar to be earned is 100,001 in the 24% tax bracket)

Which one of the following correctly defines a common chain of command within a corporation?

The controller reports directly to the chief financial officer.

Which one of the following statements is correct?

The primary purpose of the NYSE is to match buyers with sellers.

Financial Leverage Ratios

Times Interest Earned: EBIT/Interest Cash Coverage= (EBIT + Depreciation)/Interest

Asset Turnover Ratios

Total Asset Turnover: Sales/Total assets Capital Intensity ratio: 1/Total Assets Turnover

In a general partnership, each partner is personally liable for:

total debts of the partnership, even if he or she was unaware of those debts.

The daily financial operations of a firm are primarily controlled by managing the:

working capital