test 3
Capital Budgeting decision
evaluates profitability of potential investments by a firm in new property, plant and equipment
annuity
Used to evaluate the present value of a series of equal-sized cash flows made over a number of periods
Average return
annual return/ investment (does not consider time value of money and does not measure profit)
Current assets
cash, accounts receivable, inventories
Net Working capital sources
fixed assets sale, investment sales, long term loans taken, stock sale, depreciation, profits
Opportunity costs
the cost of return (i.e. how much money could I have made if I invested my money elsewhere
Break even analysis
this is when a firm finds where selling price allows the firm to have no profit and no losses. on margin percentage
Reasons to hold inventory
to match supply with demand (if demand is seasonal), to prevent stockouts, and to attain lower purchasing costs
Purpose financial
to see and evaluate a firm's profitability, estimate their future financial position, record past financial info
Balance sheet accounting equation
total assets = total liabilities + owners equity
compounding
what money put into a savings account today will be worth at a future date
Comparative Statement Analysis
This is when you compare the balance sheets and income statements of two periods side by side and check for significant changes in dollars or percentages. Measuring industry averages or benchmarks in performance
objectives financial
how fast they can turn assets to cash and solvency total assets exceed 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 future
Payback method
investment/annual return (not based on profitability)
Current liabilities
notes payable, accounts payable, amount of $ due this year on long term debt
Net Working capital uses
payments to dividends, fixed assets purchase, investments payments, long term repayment, and stock retirement
net present value
present value benefits- present value of costs
benefit costs ratio
present value benefits/ present value costs
Cost of goods sold (cogs)
significant expense. Things such as raw materials, transportation, labor. (all fall under the category of manufacturing overhead)
Owner's equity
stock and retained earning
explicit costs
the same as marginal cost. It is the price of producing one more additional unit of a good.
Operating expenses
these are expenses such as costs of goods sold and manufacturing overhead. The expenses it takes to run the company on a day to day
