Finance Unit 3
Official corporate tax brackets
15,25,34,35
Enterprise value (EV)
= Market capitalization + Market value of interest bearing debt-cash
Quick ratio (Liquidity ratio)
=(Current assets-inventory)/Current liabilities
Cash Coverage (coverage ratio)
=(Earnings before interest and tax+depreciation+amortization)/Interest
Total debt ratio (leverage ratio)
=(Total assets-total equity)/Total assets
Days' sales in inventory (inventory ratio)
=365/Inventory turnover
Days' sales in receivables (Receivables ratio)
=365/Receivables turnover
Cash flow from assets
=Cash flow to creditors+Cash flow to stockholders
Cash ratio (Liquidity ratio)
=Cash/Current liabilities
Inventory turnover (Inventory ratio)
=Costs of good sold/Inventory
Current ratio (Liquidity ratio)
=Current assets/current liabilities
Cash flow to stockholders
=Dividends paid-net new equity raised
EV multiple
=EV/EBITDA
Times interest earned (coverage ratio)
=Earnings before interest and tax/Interest
Operating cash flow
=Earnings before interest and taxes-beginning net fixed assets+depreciation
Change in NWC
=Ending net working capital-beginning net working capital
Cash flow to creditors
=Interest paid-net new borrowing
Assets
=Liabilities + Shareholder's equity
Market to book ratio
=Market value per share/book value per share
Return on Equity (ROE)
=Net income/ Total equity
Return on Assets (ROA)
=Net income/Total Assets
Profit margin
=Net income/sales
Cash flow from assets
=Operating cash flow-net capital spending-change in net working capital
Price earnings ratio
=Price per share/Earnings per share
Receivables turnover (Receivables ratio)
=Sales/Accounts Receivable
Total asset turnover
=Sales/total assets
Equity Multiplier (leverage ratio)
=Total assets/Total equity = 1+(Debt/Equity)
Debt/Equity (leverage ratio)
=Total debt/Total equity
EBITDA margin
=earnings before interest, tax, depreciation and amortization/ Sales
Current
A _____ asset has a life of less than one year
Liquidity
A term that refers to the speed and ease in which an asset can be converted to cash.
35
According to the US tax code, marginal and average taxes equalize at a final tax rate of ____%
Positive, negative
An investment should be accepted if the net present value is ______ and rejected if ________.
Statement of cash flows
An official accounting statement that helps explain the changes in cash and cash equivalents is called
Horizontal analysis (period over period growth)
Compares values over time
Vertical analysis (common size)
Compares values within a specific period
Common-size balance sheets
Compute all accounts as a percent of total assets
Common-size income statements
Compute all line items as a percent of sales
Net working capital
Current assets less current liabilities
Equity
Difference between what a firm owns and owes
non-cash items
Expenses charged against revenues that do not directly affect cash flow, such as depreciation and deferred taxes.
38, 39
Fifth and Sixth tax brackets that result from surcharge
Income statement
Financial statement that measures a firm's performance over some period of time.
Variable
In the long run, all business costs are....
Financial leverage
Indicated choice of optimal debt ratio
Total asset turnover
Indicates asset use efficiency
Profit margin
Indicates operating efficienct
Dividend policy
Indicates the choice of how much to pay to shareholders versus reinvesting in the firm
Financial ratios
Liquidity, Financial Leverage, Asset management/turnover, profitability, market value
Tax payments
Operating cash flows reflects
Product costs
Raw materials, labor expense, and manufacturing overhead are examples of
Payback period
The amount of time required for an investment to generate cash flows sufficient to cover its original cost.
Discounted payback period
The amount of time required for an investment's discounted cash flows to equal its original cost.
capital budgeting decision
The decision of what fixed assets should we buy
Net present value (NPV)
The difference between an investment's market value and its cost
Marginal tax rate
The rate of extra tax you would pay if you earned one more dollar.
Tax code
The size of a companies tax bill is determined by the
Financial Leverage
The use of debt in a firm's capital structure.
Flat-rate tax
There is only one tax rate, so the rate is the same for all income levels. Marginal tax rate is the same as average tax rate.
Long term debt
Total capitalization equals total equity plus total
Average tax rate
Total taxes paid divided by total taxable income
Peer group analysis
Used to compare similar companies
Time-Trend analysis
Used to see how the firm's performance is changing through time
Book values
Values shown on a balance sheet for the firms assets which are generally not what they are actually worth.
Liabilities
What a firm owes
Assets
What a firm owns
Income statement
When looking at this, a financial manager needs to keep these three things in mind, the GAAP, cash vs. non cash items, and time and costs.
balance sheet
financial statement showing a firm's accounting value on a particular date
