AGECON 1003 Fannin Exam 3

Operating Expenses

are the general costs of operating and administering the business, outside of the direct cost of goods sold

Current Assets

either cash now or will turn into cash very quickly

Activity Ratio Problem

gives a general measure of the efficiency of the firm: Inventory turnover = cost of goods sold/inventory level, Accounts receivable turnover = credit sales/accounts receivable, Accounts payable turnover = purchases on credit/accounts payable

Comparative Statement Analysis

manages change over time and against industry averages and benchmarks

Net Present Value

uses the time value of money concepts, investments with a positive NPV are profitable

Compounding

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

Cost of Goods Sold (COGS)

represents the direct costs to business of just goods that are sold this period

Balance Sheet Accounting Equation

Assets = Liabilities + Equity

Capital Budgeting Decision

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

Reasons to Hold Inventory

Matching supply with demand, prevent stockout, lower purchasing costs

Profitability Ratio Problem

ROI = Profit before tax/total assets, Return on owners equity = Profit before taxes/owners equity, Profit as percentage of sales ratio = profit before taxes/total sales

Purpose and Financial Objectives

Purpose: an accurate picture of firms current profitability, an estimate of firms current and future financial position, input to firms management information system, an accurate record of past financial performance; Objectives: Profits-is the margin between total business receipts and total business expenses, Liquidity-refers to the ability of the business to meet its cash commitments in a timely fashion, Solvency-a business is solvent if total assets exceed total liabilities

Explicit Costs

Those costs which are generally for direct purchases of inputs and services which are directly traceable 1.Labor 2.Production 3.Materials

Solvency Ratio Problem

debt to equity = total debt/owners equity, times interest earned = income before taxes & interest expense/interest expense

Current Liabilities

describe claims that are due within the normal operating cycle, normally one year

Liquidity Ratio Problem

determines in the firm has sufficient cash to pay bills on time: Current ratio = current assets/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 the future

Annuity Definition

is the sum of discount factors for a series of equal payments over a period of time

Contribution (including Contribution formula)

is what is available for paying overhead and profit; Contribution = Selling price/Unit - Variable Cost/Unit

Owner's Equity

represents money left for the owner of the business should the assets be sold & all liabilities paid as of the date of the balance sheet.

Net Working Capital (Including Sources and Uses)

tells managers where the firm gets its money from and how they are spending it, Sources: fixed assets sale, investments sales, long-term loans take, stock sale, depreciation, profits. Uses: dividend payment, fixed assets purchase, investments purchase, long term repayment, stock retirement

Opportunity Costs

the loss of potential gain from other alternatives when one alternative is chosen