Financial Concepts

capitalizing versus expensing

(15K on annual cost of routine repair and expense considered expense ordinary regular maintenance), (develop a coal mine Capitalize into asset. Increases value of the firm and will provide benefits for an extended period of time), (replace a roof Capitalize into asset. Increases value of the firm's assets and will provide benefits for an extended period of time. If they had just repaired the roof this would have been expensed.), (4k for grading and leveling so a building can be built Capitalize into asset. Increases value of the firm and will provide benefits for an extended period of time)

longer term (capital market)

(Debt) T-Notes & Bonds Agency Bonds Municipal Bonds Corporate Bonds Syndicated Loans 2-4% return (Equity) common stock preferred stock (derivatives LEAPS (long term option to buy) Swaps

indirect method of statement of cash flows

98% of companies use it. reconciling net income to the end of cash balance (first and last line)

asset growth-percentage

=(assets most recent year-assets previous year)/assets previous year

sales growth-percentage

=(sales most recent year-sales previous year)/sales previous year

NOPAT (net operating profit after tax)-number

=EBIT(1-tax rate)

contra liability

A contra liability account is a liability account where the balance will be either a debit balance or a zero balance. Since a debit balance in a liability account is contrary to the normal or expected credit balance, the account is referred to as a contra liability account.

EBT (earnings before taxes)(pretax income)-number

A line on a companys income statement to show the revenue minus the expenses =EBIT + interest income - interest expense operating profit - interest expense + gains - losses

stock split

A stock split increases the number of shares of stock outstanding and decreases the par value per share usually occurs in organizations that see their shares increase substantially

cumulative dividend

A sum that publicly traded companies must remit to preferred shareholders without regard to the company's earnings or profitability

declared dividend

A temporary account that is debited when cash dividends have been declared (instead of debiting the Retained Earnings account. At the end of the accounting year, the balance in this account is transferred to the Retained Earnings account

perpetual preferred stock

A type of preferred stock that has no maturity date. The issuers of perpetual preferred stock will always have redemption privileges on such shares. Issued perpetual preferred stock will continue paying dividends indefinitely.

allowance for bad debts

A valuation account used to estimate the portion of a bank's loan portfolio that will ultimately be uncollectible. When a loan goes bad, the asset is removed from the books and the allowance for bad debt is charged for the book value of the loan.

adjusting entry

Accruals and reclassification adjusting entries occur at the end of the accounting period. Adjusting entries are needed whenever revenue or expenses affect more than one accounting period. Every adjusting entry involves a change in either a revenue or expense account and an asset or liability account. Every adjusting entry will involve at least two accounts

effect of depreciation on roi

Business that has been in business longer will have a fixed asset base low and depreciation expense low. net income high Business will have higher income and lower asset base

future value

C0*(1+r)n C0 is the cash flow at date 0 or sometimes written just as PV r is the interest rate n is the number of periods over which te cash is invested

Cash Flows statement

Cash flows during the period. the statement of cash flows details the actual inflows and outflows of cash during a period of time which is typically one year. (operations, investing, financing) (operating activities, depreciation expense, increase in accounts receivable, increase inventory, increase in current liabilities, cash flow from investing activities, cash flow from financing activities

common stock definition and formula

Common stock gets paid after premium if goes under, $5 par value, 2,000,000 shares authorized, 1,400,000 shares issued, 1,300,000 shares outstanding Common stock= par value x # shares issued =5*1.4million = 7million

cash dividend

Common stock, $5 par value, 2,000,000 shares authorized, 1,400,000 shares issued, 1,300,000 shares outstanding dividend $0.15 share Cash dividend=shares outstanding x dividend per share =0.15*1.3million=195,000

consistency

Consistency is the concept that makes it inappropriate to change from one generally accepted alternative method of accounting for a transaction to another method without explicitly describing the change in methods and its effect on the financial statements in the notes to the financial statements

straight line method (annual depreciation expense)

Cost (50000) subtract estimated salvage value (5000) divided estimated useful life 5 Cost-salvage value/divided years 50000-5000/5=90000

prepaid expenses

Current assets include cash and those assets that are expected to be converted to cash or used up within one year

sales revenues

Current level Short-term growth rate in sales Long-term sustainable growth rate in sales

dividend static

D1/discount rate

income tax-number

EBT x tax rate(should be given)

Income Statement

Earnings for the period. shows the profit or loss for the period of time (usually one year) under consideration (net sales or revenues, cost of goods sold, gross profit, operating expenses: general and administrative, selling expenses, depreciation, research & development, EBIT, gains or losses, income operations, interest expense, income taxes, net income, earnings per share (eps), revenue

capital investment

Funds invested in a firm or enterprise for the purposes of furthering its business objectives.

matching principle (gaap)

GAAP dictates that revenues be matched with expenses within the proper period of time

lower of cost or market

Inventory must be reported at market value on the balance sheet when the market value is lower than cost which is consistent with the conservatism principle. Market is defined as current replacement cost (not sales price). Lower of cost or market can be applied three ways: (1) applied separately to each individual inventory item, (2) applied to broad categories of inventory, or (3) applied to the whole inventory. Spoilage will obviously reduce the value of inventories. A firm holding last year's style of clothes or last year's electronic products may also see the market value for its inventories reduced significantly below their original cost.

double declining balance method (depreciation)

Jones Manufacturing buys a new injection moulding machine for $20,000. It has an estimated economic life of 5 years at the end of which the used machine could be sold for $2000 1. =20000/5*2=8000 2. =(20000-8000)/5*2=4800 correct number

modified accelerated cost recovery system (macrs)

MACRS depreciation provides for rapid write-off of an asset's cost in order to stimulate new investment. MACRS ignores salvage values when computing annual depreciation. Additionally, the Internal Revenue Service determines the useful life of asset classes.

contingent liabilities

Other noncurrent liabilities include potential claims on the resources of a company arising from pending litigation, environmental hazards, casualty losses to property, product warranties, or unsettled disputes with the Internal Revenue Service. These are classified as contingent liabilities.

paid in capital

Paid-in Capital includes preferred and common stock, at par or stated value and Additional Paid-in Capital

convertible preferred stock

Preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date

Common stock

Reflects the number of shares authorized by the corporation's charter, the number of shares issued to stockholders, and the number of shares still held by the stockholders

Retained earnings

Represents the cumulative net income since inception of the entity that has been retained for use in the business

Paid-in capital

Represents the total amount invested in the entity by the owners

cost of goods sold

Represents the total cost of merchandise removed from inventory and delivered to customers as a result of sales.

straight line method (Depreciation expense per unit produced units of production method)

Step 1: cost (50000) subtracting estimated salvage value (5000) divided by estimated total units to be made over useful lifetime of asset (100000) = depreciation expense per unit step 2: depreciation expense per unit produced times number of units produced during the year (22000) 50000-5000/100000=.45 .45 x 22000= 9900

revenue

The amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. (net sales)

expense

The economic costs that a business incurs through its operations to earn revenue. (depreciation expense, income tax expense)

factors affecting the cost of money

Time preferences for consumption Time/duration of investment How long will the funds be tied up? Alternative opportunities What could the investor receive elsewhere? Risk (assuredness of return) Expected inflation

specific identification method

When a unit is sold, the specific cost of the unit sold is added to cost of goods sold.

disposal of depreciable assets

When depreciable assets are sold, the firm must update the depreciation to the date of disposal and journalize the disposal.

Partnership

a business owned by two or more persons associated as partners. General Partnership Limited Partnership

fixed assets turnover

a companies ability to generate net sales from fixed asset investments net sales / fixed assets net sales / net property, plan, and equipment are fixed assets

liabilities

a companies legal debts or obligations debit for decrease /credit for increase

Net income (NI)-number

a companys total earnings or profits after closing the books on the balance statement the net income gets transferred into the owners equity =EBT - income taxes

accrual accounting

a concept that recognizes revenue at the point of sale and recognizes expenses as they are incurred even though the cash receipt or payment occurs at another time or in another accounting period.

financial asset

a contract that entitles the owner to some type of payoff

loss

a decrease in the value of an asset or property

receivables turnover ratio

a firms effectiveness in extending credit and in collecting debts on that credit net credit sales / average accounts receivable

times interest earned (TIE)-number

a metric used to measure a companys ability to meet its debt obligations should be around 3 or 4 to ensure you can meet your expenses EBIT/Interest payable or interest expense

account

a record of debit and credit entries to cover transactions involving a particular item or a particular person

bank reconciliation

a report which compares the bank balance to the companys balance

common stock

a share of ownership in the company at the bottom of the priority list if the company goes under.

dividend

a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits

Asset

a tangible/intangible item that will be worth money in a year. cash, inventories, good will

credit

accounting entry that either increases a liability or equity account or decreases asset or expense account: debits will always equal credits

current liabilities

accounts payable, short term debt payable, other accrued liabilities

selling general administrative expenses (sg&a)

acronym for the expenses of a non production cost on the income statement

Fair Value Accounting

all assets are valued with historical values balance sheet asset and liabilities values are adjusted for changes in the market values. Since owners' equity is the residual of assets less liabilities, fair value accounting may have a direct impact on the owners' equity portion of the balance sheet. This can occur in two ways. If any changes in the market value of assets are recorded on the income statement this will directly impact the company's net income for the period and thus the retained earnings account. There is a second, alternative method. A new account has been created in the owners' equity section titled Other Comprehensive Income. This is used in cases where changes in the market value of assets is reflected directly into the owners' equity account without first the passing through the income statement.

accounts payable

amounts owed to suppliers for goods and services that have been provided on credit

contra liability account

an account that will be amortized over the over the life of the bond as an adjustment to interest expense

debit

an accounting entry that either increases an asset or expense account or decreases a liability or equity account: debits will always equal credits

gain

an increase in the value of an asset or property (gain on sale of land)

total asset turnover ratio-number

an indicator of how good the company is performing. higher better. generating more revenue per dollar of assets =revenue/total assets

t-account

an informal term for a set of financial records that use double entry bookkeeping and describes the appearance for debit and credits

discretionary cash flow

any money left over once all possible projects with positive net present values have been financed free operating cash flow (focf) - dividends

transactions

are economic interchanges between entities that are accounted for and reflected in financial statements

liquidity ratios (current and quick or acid test)

assess a businesses liquidity ability to convert its assets to cash and payoff obligations beneficial for suppliers, employees, banks (everyone wants to get paid

asset management ratios (inventory turnover ratio, days sales in inventory, receivables turnover ratio, days sales outstanding, payables turnover ratio, days payable outstanding, fixed assets turnover ratio, total assets turnover ratio

assess the efficiency of operations of a business how effectively the business is coverting inventories into sales, sales into cash, and utilizing its fixed assets and working capital

debt ratios (debt ratio, debt to equity ratio, debt to capital ratio, times interest earned ratio, equity multiplier

assess the long term financial viability of a business ability to pay off its long term obligations such as bank loans, bonds payable beneficial for banks, employees, owners, bond holders, institutional investors, government

5 buckets a transaction can fall into

asset, liabilities, owners equity, revenue, expenses

dividend discount model

assumes that the companys dividend on its common stock will grow at a fixed rate over time constant growth dividend pmt1year / (discount rate-growth rate) *to get payment 1 take payment and * by what ever growth rate example= 1.60stock*1.06 which is 6% in excel= answer if static D1/discount rate

fifo (first in first out)

assumes that the first goods purchased (hence the oldest inventories) will be the first sold and ties the value of the goods sold to the purchase cost of those oldest inventories

lifo (last in first out)

assumes that the most recent purchases of inventories (and the price/value of those goods) will be the first sold.

Generally Accepted Accounting Principles (GAAP)

audited financial statements of firms in the U.S. carry most assets at historical cost.

4 types of financial statements

balance sheet (point of time), all others over a period of time: income statement, statement of equity, statement of cashflows

cash flow per share ratio

better way to assess the company but getting access is harder than profitability metrics net income + depreciation

journal

book of original entry. used to be put in a journal

limited liability company LLC

business with limited liability to its owners

semi-annual bonds

calculator double the years N, half the coupon rate is payments, half the market interest rate I, FV1000, solve for PV

cash ratio

cash / current liabilities

commonsize cash

cash 4500 total assets 62000 move decimals over 2 =4500/62000=7.2%

financing activity

cash dividends declared and paid=negative, repayment of long-term debt=negative, issuance of common stock=positive

mirr

cash flows are reinvested back into the company

current assets

cash, accounts receivable - allowance for bad debts, inventories, short term investments, prepaid expenses, marketing securities, notes and bond receivables

book value per share

common equity / shares outstanding

treasury stock

company buys back from public share holders due to being undervalued. the treasury stock also reduces equity and the amount of shares outstanding. It is also the difference between the issue shares and outstanding shares reduces the amount of owners equity, so is shown as a contra owners equity account in the balance sheet

quick ratio-number

companys ability to meet its short term obligations with its most liquid assets (current assets are only inventories, receivables, and cash) it is not fixed or total assets =(current assets - inventories) / current liabilities

objectivity

concept that refers to the accountants' desire to have a given transaction recorded in the same way in all situations

accounting period

concept that relates to the period of time selected for reporting results of operations and changes in financial position

matching concept

concept that requires all expenses incurred to generate an accounting period's revenues be deducted from revenues earned in that accounting period

managerial accounting

concerned with the use of economic and financial information to plan and control many of the activities of the entity and to support the management decision-making process.

unearned revenue

customers pay for services or products before delivery

dividend growth

d1/(discount rate-growth rate)

bond date

date bond was issued

days payables outstanding

days it takes to pay invoices ending accounts payable / (cost of sales / number of days)

assets

debit for increase / credit for decrease liabilities + owners equity

financial markets

debt, long term vs short term, equity common and preferred, derivatives, primary vs secondary

contra asset

deductions from the assets. allowance for doubtful accounts. this keep track in case businesses go under and helps offset accumulated depreciation A contra asset is a negative asset account that offsets the balance in the asset account with which it is paired. The purpose of a contra asset account is to store a reserve that reduces the balance in the paired account.

accumulated depreciation

depreciated for example building over periods of time

Net operating working capital (NOWC)-number

determine if any excess cash is available after paying the liabilities =current operating assets - current operating liabilites

inventory valuation methods

determines the cost of inventory sold fifo, lifo, specific identification, weighted average

pre financing cash flow

discretionary cash flow - other investing activities

Cost of equity (Required return)

dividend yield + capital gain

basic earning power bep

ebit / total assets

net profit (percentage)

every dollar of sales a company keeps in earnings net income / net sales or revenue

double entry bookkeeping

every transaction at least two accounts example: buying land with cash increases assets and cash

debt to equity ratio-number

financial ratio indicating the relative proportion of shareholders equity and debt used to finance a company assets (like leveraging) =debt/equity

commonsize balance sheet

formula is everything divided by total assets then move decimal over to the right by 2

accounts receivable (ar)

funds due from customers who paid in some form other than cash

deferred revenue or accrued revenue

gain revenue but will be doing services over a course of time to make it whole. Paid rent for a year even though you wont get the asset back for monthly

financial leverage

general term used to describe the relative proportions of debt and equity that are used to finance a business

financial accounting

generally refers to the process that results in the preparation and reporting of financial statements for an entity.

derivative

gets its value from something else: a stock option gets its value from the stock value

operating profit

gross profit - operating expense

inventory turnover ratio-number

how many times the inventory is sold and replaced during a period = sales / inventories

dividend yield- percentage

how much a company pays out in dividends each year relative to its share price =dividend per share/price per share

dividend yield ratio percentage

how much a company pays out in dividends each year relative to its share price annual dividends per share / price per share

debt to equity ratio (decimal)

how much debt the company is using to finance assets higher number means the more it is using debt total debt / total equity

return on equity (ROE)-percentage

how much profit a company generates with the money shareholders have invested =net income / shareholders common equity

return on invested capital (ROIC)-percentage 2 decimals over

how well a company is using its money to generate returns =NOPAT or net operating profit after tax / Operating capital

preferred stock

if a company goes under these get paid out before the common stock. dividend payable it includes term, perpetual

return on assets (ROA)-percentage

indicator of how profitable a company is relative to its total assets. efficient management is at using its assets to generate earnings =net income / total assets

operating activity

interest and taxes paid=negative, collections from customers=positive, cash paid to suppliers and employees=negative,

interest discount basis

interest is paid in advance principal - interest

effective annual rate or ear%

interest rate yearly (ear) 12.00 ear 2= (1+0.12/2)2-1 answer12.36% ear12=(1+0.12/12/12-1 answer 12.68% eard(365)= (1+0.12/365)365-1 answer 12.75%

commonsize inventories

inventories 7500 total assets 62000 move decimal over 2 =inventories/total assets =7500/62000=12.1%

periodic inventory

inventory and cost of goods sold are recorded at a period of time

weighted average method

inventory calculation cost of goods available for sale during the year divided by units available for sale during the year

yield to maturity (ytm) Bond

investors expect to receive the full amount at maturity calculator sells at issuance is negative PV, years as N, future value 1000 (usual bond), % as payment example 10% would be 100, then solve for I

stock dividend

is a distribution of additional shares of stock to stockholders

internal rate of return irr

is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero

yield to call (ytc) Bond

issuers can say that they want to call prior to the maturity date calculator sells at issuance is negative PV, years as N earlier at call than maturity, future value 1000 (usual bond), % as payment example 10% would be 100, then solve for I

days sales in inventory

it shows how many days it takes a company to sell its inventory (ending inventory / cost of goods sold) x 365

du pont system

it summarizes trends in a company is uses profitability, asset management and financial leverage to produce return on equity

perpetuity annuity

its simply an annuity that goes on forever pv of the perpetuity= payment / discount rate

arithmetic average

just average the percentages or numbers

fixed assets

land, buildings plant and equipment - accumulated depreciation, intangible assets, natural resources, depreciation, maintenance and repair, leases, intangible assets

long term assets (non-current assets)

land, buildings, equipment, intangible assets, natural resources

Liability

legal debts or obligations that arise during the couse of business operations (accounts payable, dividends payable, short term debt)

liabilities current

less than a year short term debt, current maturities of lt debt, accounts payable, unearned revenue, payroll taxes payable, liability for warranty, accruals

5 major categories of ratios

liquidity, asset management, debt management, profitability, market value

long term liabilities

long term debt

price earnings ratio (p/e) decimal

market value per share / earnings per share

Cost-benefit relationship

means that the increased benefit of increased accuracy should outweigh the cost of achieving the increased accuracy

freight on board fob

means that the seller pays for transportation of the goods to the port of shipment, plus loading costs

funds from operations (ffo)

measure of cash generated by a real estate investment trust net income + depreciation - deferred taxes + gains on asset sales + changes in other non cash items

days sales outstanding (DSO)-number

measure the average number of days a company takes to collect revenue after sales =(receivables*365)/revenue

equity multiplier-number

measurement of a companys financial leverage. companies finance the purchase of assets either through equity or debt. High equity multiplier indicates that a larger portion of financing is done through debt =assets/equity

debt ratio (decimal or a percentage)

measures a companies leverage total liabilities / total assets

debt to capital ratio

measures a companies leverage. the higher the more debt that is using to finance operations debt includes short term and long / shareholders equity + debt

price to book (p/b)

measures its stock value to its book value stock price / total assets - intangible assets and liabilities

profitability and cash flow ratios (net profit margin, gross profit margin, operating profit margin, return on assets, return on capital employed, return on equity, earnings pershare

measures the ability for a business to earn profit for its owner

standard deviation

measures the investments volatility using hisotry as a gage and to predict the risk

minority interests

minority interests would have the full assets and liabilites, but then would enter minority interest to reflect the percentage reflect the percentage owned

accounts receivable

money due to your company for services rendered

realized revenue

money that an organization has already received

annuities

money up front but you get payments for that money with interest

liabilities non current (long term)

more than a year long term debt, face/par value, coupon rate, deferred tax liabilities, minority interest in subsidiaries

cost of good sold

must be noted on the cost of goods expense when the inventory is sold as an addition -750 inventory + 750 expense cost of goods

ebitda (earnings before interest depreciation and amortization) operating income

net income - expenses this includes cost of goods sold and sg&A expense and interest - depreciation operating profit + depreciation and amortization =gross income or profit - advertising expense-depreciation & amortization-general and administrative expenses

market value

number of shares outstanding subtracting the treasury stock times public company price

single step income statement

offer a straight forward accounting of a companys business activity. (revenues + gains) - (expenses+losses) = net income

free operating cash flow (focf)

operating cash flow - capital spending

operating income versus net income

operating income is more important because it defines the information from the core business

operating margin

operating income or ebit /net income

operating lease

ordinary lease for the use of an asset that does not involve any attributes of ownership. use financial calcuator

owners equity formula

paid in capital + beginning retained earnings + (revenue - expense) - dividends paid

common stock definition for formulas

paid in capital - par value, additional paid in capital, retained earnings, treasury stock

dividends

paid to the shareholders and pay tax on the dividend when receiving as income

dividend payout ratio percentage

percentage of earnings paid to shareholders in dividends dividends / net income

operating cash flow

positive cash flow generated by normal business operations funds from operations (ffo) + net change in current assets / liabilities

going concern concept

presumption that the entity will continue to operate in the future - it is not being liquidatd;

price/ cash flow ratio

price per share / cash flow per share

price / earnings ratio

price per share / eps

ledger

principal book or computer file for recording and totaling economic transactions meaured in terms of a monetary unit of account by account type

conservatism

principle that requires accountants, when in doubt, to make judgments and estimates that result in lower profits and asset valuations.

gross profit -answers a number

profit a company makes after deducting the costs associated with making and selling its products revenue or net sales-cost of goods sold

earnings per share (eps)

profitability indicator net income divided by the number of the company's shares of common stock outstanding calculator (Net income enter number of common stock divided) or net income / # shares outstanding

EBIT earnings before interest and taxes

profitability measure Operating profit + other income revenue - operating expense operating expenses include cost of goods sold and sg&a and interest expense

profit margin-percentage

profitability metric. most used to assess a company =net income / sales

investing activity

purchase of land and buildings=negative, purchase of new delivery trucks=negative

operating costs

raw materials, labor, etc.) and taxes

commonsize receivables

receivables 21000 total assets 62000 move decimal over 2 =21000/62000=33.9%

market ratios (price to earnings, price to book, dividend payout, dividend yield, retention)

related to profitability that are used by investors to assess the stock market performance

cost accounting

relates to the determination and accumulation of product, process, or service costs.

Owners' Equity statement

reports the details of owners' equity and explains the changes that occurred in paid-in capital and retained earnings during the year. Investments by and distributions to owners during the period. (paid-in capital, common stock, additional paid-in capital, retained earnings, dividends, equity issuance and retirement, net income, dividends, treasury stock)

deferred taxes

represents the amount of taxes the company says it owes pursuant to income reported on the income statement.

unit of measurement principle

requirement that only transactions denominated in dollars are recorded in the accounting records

full disclosure

requires that circumstances and events that make a difference to financial statement users should be disclosed;

capital lease

results in the lessee (renter) assuming virtually all of the benefits and risks of ownership for the leased asset. 1.Transfers ownership to lessee. 2.Includes nominal purchase price (at end of lease) 3.Lease term is ≥ 75% of life of asset. 4.Present value of lease payments is ≥ 90% of fair value of asset. Only one criterium needs to be met! use financial calculator

income statement net sales

revenue comes from operating activities, selling merchandise etc...

interest rate risk free real rate of interest

risk free real rate of interest + inflation risk + default / credit risk + liquidity/maturity risk

weighted average system

rolls together the prices paid for all goods in inventory, and applies that average value as the cost of goods sold for any sale.

return on capital employed

shows profitability earnings before interest and tax or ebit / capital employed

interest

straight interest reflects the calculation or payment of interest as it comes due principal x annual rate x time in years

objectives of business organization

survival return to shareholders, maximize value, maximize income, different stakeholders

commonsize income statement

take every line item and divide by the total sales

expenditure

teh action of spending funds

accounting entity concept

term that refers to an entity for which financial statements are prepared-every economic entity can be separately identified and accounted for,

cost principle

that requires transactions to be recorded at their original cost to the entity as measured in dollars.

compounding

the ability of an asset to generate which are then reinvested in order to generate their own earnings

investment

the action or process of investing money for profit or material result

face value (par value)

the amount an investor will receive at maturity

equity value

the amount of equity on the balance sheet

owners equity

the amount of ownership an individual or company has an asset (common stock, retained earnings)

payroll expense

the amounts withheld by the employer that are owed to various governmental bodies

weighted average cost of capital (wacc)

the average rate of return required by all of the company's investors. =WdRd(1-T)+WpsRps+WceRs

operating cycle

the average time it takes to convert an investment in inventory back into cash

free cash flow (fcf)

the cash flows that are available (or free) for distribution to all investors (stockholders and creditors) nopat - net investment in operating capital

operating capital-number

the cash used for daily operations in an organization NOWC or net operating working capital +current operating liabilities

current ratio-number

the companys ability to pay short term and long term obligations, good to have 1/1 (current assets are only inventories, receivables, and cash) is not fixed or total assets =current assets / current liabilities

premium

the coupon rate is above the market interest rate

discount

the coupon rate is lower than the market rate

par or equal to

the coupon rate is sells at the face amount or par

total assets turnover

the efficiency with which is deploying its assets in generating revenue sales or revenues / total assets

dividends per share-dollars and cents

the entire dividends pay out for every share held =dividends/shares outstanding

equity multiplier

the higher the number shows that a larger portion of financing is being done through debt total assets / total equity

payback period

the length of time required torecover the cost of an investment cost of projects or outflows/annual cash inflows

gross profit margin (percentage)

the money left over after cost of goods sold revenue - cost of goods sold / revenue

dividend payout ratio-percentage

the percentage of earnings paid to shareholders in dividends =dividends/net income

retention ratio percentage

the percentage of net income that is retained to grow the business net income - dividends / net income

perpetual inventory

the perpetual system keeps track of inventory balances continuously, with updates made automatically whenever a product is received or sold.

Market value

the price at which the assets, liabilities, and equity could actually be bought or sold, which is a completely different concept from historical cost.

authorized shares

the total number of shares of common stock a company has been authorized to issue by its board of directors

equities

the value of the shares issued by the company debit for decrease /credit for increase

gross margin -percentage

total sales revenue minus its cost of goods sold. The higher the percentage, the more the company retains on each dollar of sales =(Revenue-Cost of goods sold)/Revenue

coupon rate

typically an annual rate of payment on the bond

multiple step income statement

unlike normal income statement information is offered up about the gross profit and operating profit

yield curve

upward sloping reflecting lower rates for short term and higher rates for longer terms

straight line depreciation (annual)

used by most organizations another example: Jones Manufacturing buys a new injection moulding machine for $20,000. It has an estimated economic life of 5 years at the end of which the used machine could be sold for $2000 Straight line depreciation (annually) = (asset acquisition cost - salvage value) =(20000-2000)/5=3600 exact excel

accruing revenue

wanting to recognize that will be paid, but havent gotten paid yet

accruing expense

wanting to recognize there will be an expense, but havent paid

interest payment dates

when investor is paid interest

maturity date

when the bond is repaid to investor

payable turnover

which rate the company pays off its suppliers total supplier purchases / average accounts payable

nature of investment

willingness to defer consumption in favor of larger returns balancing risk and reward

notes receivable

written promise to pay a specific amount in the future interest rate is usually attached