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
FIN Ch. 4