Business Finance Exam 1
Dividends per share (DPS)
Dividends paid to common stockholders / common shares outstanding
Income statement ratios
Earnings per share (EPS) Dividends per share (DPS) Book value per share (BVPS) Operating income (EBIT)
Capital Expenditures
Gross fixed assets n+1 - Gross fixed assets n
Capital Gain (loss)
profit (loss) from the sale of a capital asset for more (less) than its purchase price
Quick Ratio
(Current Assets - Inventories) / Current Liabilities Liquidity
FCF EBIT
(EBIT( 1-T)+depreciation and amortization) - (capital expenditures + change Net operating working capital)
FCF NOPAT
(NOPAT + Depreciation and amortization) - (capital expenditures + change net working capital)
(MVA) Market Value Added
(current share price * number of shares outstanding) - book value Should be positive to show good management
Balance Sheet
A financial statement that reports assets, liabilities, and owner's equity on a specific date.
Inv turnover
COGS / inventories
Annual Report
Issued to Stockholders Contains Verbal and 4 Financial Statements (Balance sheet, statement of cashflows,
5 major categories of ratios
Liquidity : Can they make required payments Asset Management : Right amount of assets vs. sales Debt management : Right mix of debt and equity Profitability : Sales prices prices exceed unit costs and sales high enough as reflected in PM,ROE, and ROA Market Value : Do investors like what they see as reflected in P/E and M/B ratios
Earnings per share (EPS)
Net income / Common shares outstanding
"free" credit to show the impact
Net operating work capital (NOWC) = Current Assets - (Current liabilities - Notes payable)
Hybrid Securities to raise capital
Preferred Stock Convertible bonds Used to provide more flexibility
Operating income (EBIT)
Sales - Operating costs
Total debt
Short term debt + Long term debt
Why are ratios useful
Standardize Comparisons Time Competitors
Marginal Tax Rate
Tax rate on the last dollar of income
stock holders equity formula
Total Assets - Total Liabilities or Paid in Capital + Retained earnings
Economic Value Added (EVA)
Used to evaluate manager performance want a positive after tax operations and want it high EVA = NOPAT - Annual dollar cost of capital EVA = EBIT (1-T) - (Total invested capital * after tax percentage cost of capital) OP income = EBIT
Book Number
accounting number
Working Capital
current assets - current liabilities assets that are used and replaced as part of the business
Current Ratio
current assets/current liabilities (liquidity)
Strait - line
depreciation is used for GAAP statements
NOWC change
need 2 years Current Assets - (current liabilities - Notes payable)
Negative Cash flows
not a good sign
Statement of Stockholders' equity
show changes in stockholders' equity for a period of time
Statement of Cash Flows
shows the change in a firm's cash position or a period of time
Income Statement
shows the firms earnings and expenses for a period of time
Average tax Rate
taxes paid divided by taxable income
EBIT and T found on
the Income Statement
Free Cash Flow
the amount of cash that could be withdrawn without harming a firms ability to operate and to produce future cash flows
Book Value per share (BVPS)
total common equity / common shares outstanding
Total Liabilities
total debt + (accounts payable + accruals)
Accelerated Depreciation
used for tax statements Modified accelerated cost recovery system (MACRS) is most common
Market Value
what an asset would most likely sell for
