test 3

Capital Budgeting decision

evaluates profitability of potential investments by a firm in new property, plant and equipment

annuity

Used to evaluate the present value of a series of equal-sized cash flows made over a number of periods

Average return

annual return/ investment (does not consider time value of money and does not measure profit)

Current assets

cash, accounts receivable, inventories

Net Working capital sources

fixed assets sale, investment sales, long term loans taken, stock sale, depreciation, profits

Opportunity costs

the cost of return (i.e. how much money could I have made if I invested my money elsewhere

Break even analysis

this is when a firm finds where selling price allows the firm to have no profit and no losses. on margin percentage

Reasons to hold inventory

to match supply with demand (if demand is seasonal), to prevent stockouts, and to attain lower purchasing costs

Purpose financial

to see and evaluate a firm's profitability, estimate their future financial position, record past financial info

Balance sheet accounting equation

total assets = total liabilities + owners equity

compounding

what money put into a savings account today will be worth at a future date

Comparative Statement Analysis

This is when you compare the balance sheets and income statements of two periods side by side and check for significant changes in dollars or percentages. Measuring industry averages or benchmarks in performance

objectives financial

how fast they can turn assets to cash and solvency total assets exceed 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 future

Payback method

investment/annual return (not based on profitability)

Current liabilities

notes payable, accounts payable, amount of $ due this year on long term debt

Net Working capital uses

payments to dividends, fixed assets purchase, investments payments, long term repayment, and stock retirement

net present value

present value benefits- present value of costs

benefit costs ratio

present value benefits/ present value costs

Cost of goods sold (cogs)

significant expense. Things such as raw materials, transportation, labor. (all fall under the category of manufacturing overhead)

Owner's equity

stock and retained earning

explicit costs

the same as marginal cost. It is the price of producing one more additional unit of a good.

Operating expenses

these are expenses such as costs of goods sold and manufacturing overhead. The expenses it takes to run the company on a day to day