Finance Unit 3

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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


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