# Finance 305

Home > Preview

The flashcards below were created by user jhuckmg25 on FreezingBlue Flashcards.

1. Decision Process:
3 Steps
• 1. Capital Budget Decision
• 2. Capital Structure
• 3. Working Capital
2. EBIT
Earnings before Interest and Taxes
3. P/E Ratio
Price per Share/Earnings per Share
4. Net Fixed Assets
Assets less Depreciation
5. Cash Flow from Assets
Cash available for distribution to shareholders and creditors
6. Calculating Operating Cash Flow(OCF)
EBIT + Depreciation - Taxes
7. Calculate Capital Spending(CAPEX)
Change in Net Fixed Assets + Depreciation
8. Calculate Change in Net Working Capital
• Step 1:
• Current Assets - Current Liabilities= NWC
• Step 2: Find the Change
• YearÂ 2 NWC - Year 2 NWC= Change
• Step 3:
• CFA = OCF - Capex - Change in NWC
9. Capital Budgeting
the process of planning and managing a firms longterm investments. plant and equipment.major investments usually irreversable. long term project plan.
10. capital structure
the mixture of debt and equity maintained by a firm used to finance its operations, financing project, ways to get money long term and short term debt.
11. working capital
a firms short-term assets and liabilities. how the firm manages its everyday financial activities.
12. goal of financial management
is to make decisions that increase the value of the stock or increase the market value of the equity. maximize stock prices or shareholder wealth.
13. agency problems
the possibility of conflict of interest between the owners and management of the firm.
14. stakeholder
someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm.
15. net fixed assets
assets less depreciation
16. balance sheet
financial statement showing a firms accounting value on a particular date. assets= liabilities + equity
17. net working capital
current assets less current liabilities
18. income statement
financial statement summarizing a firms performance over a period of time. rev - exp = income
19. cash flow from assets
the total of cash flow to creditors and cash flow to stockholders, consisting of the following; operating cash flow, capital spending, and change in net working capital. "free cash flow"
20. operating cash flow
cash generated from a firms normal business activities. EBIT+Depr-Taxes=OCF
21. capital spending
• money spent on fixed assets less money received from the sale of fixed assets. CAPEX
• ending net fixed assets - beg net fixed assets + depr = CAPEX
22. change in net working capital
• investment in current assets
• ca - cl = net working capital
• NWC - NWC = change in NWC
23. finding cash flow from assets
OCF - CAPEX - change in NWC = CFA
24. cash flow to creditors
• a firms interest payments to creditors less net new borrowing
• interest - net new borrowing(change in long term debt) = CFC
25. cash flow to shareholders
• dividends paid out by a firm less net new equity raised
• dividends - new equity issued(change in common stock or total equity, adjust for retained earnings)= CFS
26. free cash flow
another name for cash flow from assets, cash that is free to be distributed to creditors and stockholders because it is not needed for working capital or fixed asset investment
27. liquidity
the firms ability to pay its bills over the short run without undue stress. focusing in ca and cl
28. current ratio
• CR= CA/CL
• measure of short term liquidity, highre the better
29. quick ratio
• QR= CA - inventory/ CL
• also called the "acid test"
30. average collection period
ACP = A/R / (sales/365)
31. inventory turnover
IT = COGS / inventory
32. days sales in inventory
DSI = Inventory / (COGS/365)
33. basic earning power
BEP= EBIT/TA
34. components that make up BEP
• EBIT/Sales x Sales/TA
• Operating Profit Margin x Total Asset Turnover
35. operating profit margin
OPM= EBIT/Sales
36. total asset turnover
TAT= Sales/ TA
37. A/R turnover
Sales/ A/R
38. Inventory Turnover
IT= COGS/Inventory
39. Fixed Asset Turnover
FAT= Sales/ Net Fixed Assets
40. financial leverage
the firms long-term ability to meet its obligations measured by long-term solvency ratios
41. Total Debt Ratio
TDR= TA - TE/ TA
42. Times Interest Earned
TIE= EBIT/ Interest Expense
43. Return on Equity
is a measure of how the stockholders fared during the year
44. Return on Equity
ROE= Net Income/ Total Equity
45. 3 components that make up ROE
• Net Profit Margin x Total Asset Turnover x Equity Multiplier
• net income/sales x sales/total assets x total assets/ total equity
46. Net Profit Margin
• Net Income/Sales
• how much profit a firm gets for ever \$1 in sales
47. Total Asset Turnover
• Sales/Total Assets
• how much sales are generated for every \$1 in assets
48. Equity Multiplier
• Total Assets/Total Equity
• financial measure, the lower it is it means less debt
49. Future Value
• FV
• the amount an investment is worth after one or more periods
50. Present Value
• PV
• the current value of future cash flows discounted at the appropriate discount rate
51. Simple Interest
depositing money and removing the interest when paid but leaving the principle
52. Compound Interest
investing and then leaving it in and earning interest on interest
53. i
interest rate
54. N
# of years
55. PV
present value
56. FV
future value
57. PMT
payment in or taken out
58. Discounting
calculating the present value of some future amount

### Card Set Information

 Author: jhuckmg25 ID: 195711 Filename: Finance 305 Updated: 2013-02-20 19:00:56 Tags: Finance Folders: Description: Spring 2013 Show Answers:

Home > Flashcards > Print Preview