Finance 305

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  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
    • Year 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
  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:
Finance 305
2013-02-20 19:00:56

Spring 2013
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