Finance 3

Lakukan tugas rumah & ujian kamu dengan baik sekarang menggunakan Quizwiz!

maturity matching, or "self-liquidating," approach

a financing policy that matches the maturities of assets and liabilities. this is a moderate policy

DuPont equation

a formula that shows that the rate of return on equity can be found as the product of profit margin, total assets turnover, and the equity multiplier. It shows the relations among asset management, debt management, and profitability ratios.

profitability ratios

a group of ratios that show the combined effects of liquidity, asset management, and debt on operating results

amortization

a noncash charge similar to depreciation except that it represents a decline in value of intangible assets

annual report

a report issued annually by a corporation to its stockholders. it contains basic financial statements as well as management's analysis of the firm's past operations and future prospects

income statement

a report summarizing a firm's revenues, expenses, and profits during a reporting period, generally a quarter or a year. shows the firm's sales and costs (and thus profits) during some past period-for example, 2014.

statement of cash flows

a report that shows how items that affect the balance sheet and income statement affect the firm's cash flows.shows how much cash the firm began the year with, how much cash it ended up with, and what it did to increase or decrease cash.

asset management ratios

a set of ratios that measure how effectively a firm is managing its assets

debt management ratios

a set of ratios that measure how effectively a firm manages its debt

balance sheet

a statement of a firm's financial position at a specific point in time. shows what assets the company owns and who has claims on those assets as of a given date-for example, December 31, 2014

statement of stockholders' equity

a statement that shows by how much a firm's equity changed during the year and why this charge occurred. shows the amount of equity the stockholders had at the start of the year, the items that increased or decreased equity, and the equity at the end of the year

trend analysis

an analysis of a firm's financial ratios over time; used to estimate the likelihood of improvement or deterioration in its financial condition

liquid asset

an asset that can be converted to cash quickly at fair market value with little or no transaction costs

moderate investment policy

an investment policy that is between the relaxed and restricted policies

basic earning power (BEP) equals EBIT divided by Total assets

basic earning power (BEP) equation

current ratio equals current assets divided by current liabilities

current ratio equation

dso equalsreceivables divided by annual sales divided by 365

days sales outstanding ratio equation

quick ratio equals current assets minus inventories divided by current liabilities

quick, or acid test, ratio equation

market value ratios

ratios that relate the firm's stock price to its earnings and book value per share

liquidity ratio

ratios that show the relationship of a firm's cash and other current assets to its current liabilities

relaxed investment policy

relatively large amounts of cash, marketable securities, and inventories are carried, and a liberal credit policy results in a high level of receivables

retained earnings

they represent the cumulative total of all earnings kept by the company during its life

operating margin

this ratio measures operating income, or EBIT, per dollar of sales

times-interest-earned (TIE) ratio=EBIT/interest charges

times-interest-earned (TIE) equation

tat=sales/total assets

total assets turnover ratio equation

total debt to total capital equals total debt divided by total debt plus equity

total debt to total capital equation

total liabilities equals total debt plus accounts payable plus accruals

total liabilities equation

TOC equals NOWC plus NFA(net fixed assets)

total operating capital (TOC) equation

true

true/false If a firm's total asset turnover ratio is significantly lower than its industry average, this could indicate that it uses its assets very efficiently.

false

true/false NOWC is defined as current assets minus current liabilities

false

true/false Net Cash Flow NCF is defined as NOPAT + depreciation

false

true/false Net Income is a measure of the operating performance of the firm only

true

true/false Net Operating Profit After Taxes NOPAT is defined as EBIT(1-T)

true

true/false Other things held constant, the more debt a firm uses, the higher its profit margin will be.

false

true/false ROA is equal to the total asset turnover ratio (TAT) times return on equity (ROE).

false

true/false a liquid asset is defined as an asset that can quickly be turned into cash

false

true/false a non-traditional view of the Balance Sheet is that Total Assets are equal to Operating Assets plus Net Fixed Assets

true

true/false liquidity is a thing of value because it allows one to avoid costs

false

true/false the rate of return on current assets is typically in the 2-5% range

true

true/false total operating capital is defined as NOWC plus Net Fixed Assets

temporal and cross-sectional

two types of benchmarking

temporal

type of benchmarking that looks across time, compares to historic average for the firm

cross-sectional

type of benchmarking that looks at the industry average and compares to the firm

income

which is the best measurement of performance: cash flow or income?

B

A firm wants to strengthen its financial position. Which of the following actions would make it financially stronger. A. Increase accounts receivable whole holding sales constant. B. Increase EBIT while holding sales and assets constant. C. Increase Notes Payable while holding sales constant. D. Increase inventories while holding sales constant.

ROE equals ROA times the Equity multiplier equals profit margin times total assets turnover times equity multiplier

DuPont equations (ch 4 and 15)

profit margin equals net income divided by sales

profit margin equation

negative number of days

best length of time for CCC?

book value per share equals common equity divided by shares outstanding

book value per share equation

ccc equals inventory period plus accounts receivable period or DSO minus Accounts payable period, which is also equal to inventory divided by COGS over 365 plus accounts receivable divided by sales over 365 minus Accounts payable divided by COGS over 365

cash conversion cycle equation

cash, marketable securities, accounts receivable, and inventories

current asset examples

working capital

current assets

current assets=permanent current assets + temporary current assets

current assets equals

permanent current assets

current assets that a firm must carry even at the trough of its cycles

temporary current assets

current assets that fluctuate with seasonal or cyclical variations in sales

accounts payable, accrued wages and taxes, and short-term notes payable to its bank

current liabilities examples

EBITDA

earning before interest, taxes, depreciation, and amortization

operating income

earning from operations before interest and taxes (EBIT)

notes payable, long term liabilities, equity

financial liabilities (do require a rate of return) consist of

fixed assets turnover ratio equals sales divided by net fixed assets

fixed assets turnover ratio equation

free cash flow (FCF) equals in brackets, EBIT times 1 minus T plus depreciation and amortization minus in brackets, capital expenditures plus change in net operating working capital] or FCF equals EBIT times 1 minus T minus- change in TOC

free cash flow (fcf) equation

market/book

gives indication of how investors regard the company. low risk and high growth have high blank ratio

restricted investment policy

holdings of cash, marketable securities, inventories, and receivables are concerned

basic earning power (BEP)

indicates the ability of the firm's assets to generate operating income

days sales outstanding ratio

indicates the average length of time the firm must wait after making a sale before it receives cash

current ratio

indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future

Inventory turnover equals sales divided by inventories

inventory turnover ratio equation

stockholders' equity

it represents the amount that stockholders paid the company when shares were purchased and the amount of earnings the company has retained since its origination

market/book equals market price per share divided by book value per share

market/book equation

return on common equity (ROE)

measure the rate of return on common stockholders' investment

return on invested capital (ROIC)

measure the total return that the company has provided for its investors

fixed assets turnover ratio

measures how effectively the firm uses its plant and equipment

profit margin

measures net income per dollar of sales

times-interest-earned (TIE)

measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs

total debt to total capital

measures the percentage of the firm's capital provided by debtholders

total assets turnover ratio

measures the turnover of all of the firm's assets

net cash flow equals net income plus depreciation and amortization

net cash flow equation

net operating working capital (NOWC) equals current assets minus current liabilities minus notes payable

net operating working capital (nowc)

net sales equals price times quantity

net sales=

net working capital equals current assets minus current liabilities

net working capital equation

operating cash flow equals EBIT times 1 minus T plus depreciation and amortization

operating cash flow equation

operating income or EBIT equals sales revenues minus operating costs

operating income (or EBIT)

accounts payable and accruals

operating liabilities (don't require a rate of return) consist of

operating margin equals EBITdivided by sales

operating margin equation

price/earning (P/E) equals price per share divided by earnings per share

price/earning (P/E)

return on common equity (ROE) equals net income divided by common equity

return on common equity (ROE) equation

return on invested capital(ROIC) equals EBIT times 1 minus T over the total invested capital

return on invested capital (ROIC) equation

return on total assets (ROA) equals net income divided by total assets

return on total assets (ROA) equation

price/earning (P/E)

shows the dollar amount investors will pay for $1 of current earnings

stockholder's equity equals paid in capital plus retained earnings equals total assets minus total liabilities

stockholders' equity equations

"window dressing" technique

techniques employed by firms to make their financial statements look better than they are

free cash flow (FCF)

the amount of cash that could be withdrawn without harming a firm's ability to operate and to produce future cash flows

payables deferral period

the average length of time between the purchase of materials and labor and the payment of cash for them

average collection period (acp)

the average length of time required to convert the firm's receivables into cash to collect cash following a sale

inventory conversion period

the average time required to convert raw materials into finished goods and then to sell them

depreciation

the charge to reflect the cost of assets depleted in the production process.

cash conversion cycle (CCC)

the length of time funds are tied up in working capital, or the length of time between paying for working capital and collecting cash from the sale of the working capital

current assets financing policy

the manner in which current assets are financed

benchmarking

the process of comparing a particular company with a subset of top competitors in their industry

net operating profit after taxes (NOPAT)

the profit a company would generate if it had no debt and held only operating assets


Set pelajaran terkait

Laboratory 1 - Scientific Method

View Set