FIN Ch. 4
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Financial forecasting is used to determine the...
amount of additional funding a firm will require in the future.
Permits a company to forecast the amount of financing it will need for a given increase in sales.
Percentage-of-Sales forecasting method
What 2 things does the Percentage-of-Sales forecasting method assume? (PM)
- 1. Present asset levels are optimal with respect to present sales
- 2. Most items on the balance sheet increase in proportion to sales increases.
The amount the firm receives from the sale of common stock to investors.
Par value/Paid-in capital
Cash that was distributed to the firm's investors.
Cash flow from financing
Amount of cash available from operations after paying for investments in net working capital and fixed/long-term assets.
Cash flow from assets
The value of an asset as shown on the firm's balance sheet.
Accounting book value
# of common shares outstanding x current market price per share of common stock.
3 factors that determine the market value of a share of common stock. (ATR)
- 1. Amount/Magnitude of cash flows
- 2. Timing of cash flows
- 3. Risk associated with cash flows
Timing of cash flows is also known as...
time value of money
Gross profit from sales - total operating expenses.
Operating profit + other income.
Earnings before interest and taxes. (EBIT)
The tax rate that would be applied to the next dollar of income.
Marginal tax rate
Total taxes owed by firm / firm's taxable income.
Average tax rate
Current assets are also known as...
gross working capital
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