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78 Cards in this Set
- Front
- Back
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Merchandising activity
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Wholesalers and Retailers
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Merchandising Activity Equation
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Net Sales
- Cost of Goods sold ----------------------- Gross Profit (GP) - Operating Expenses ----------------------- Operating Profit - Interest Expense Income taxes -------------------- Net Profit |
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Operating Expenses
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salaries, wages, rent
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Operating Cycle
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How long it takes a company to complete the cash cycle
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Cash cycle
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90 Days- total cycle
Cash Accts. Inventory Recievable |
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Perpetual Cycle
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(ex. jewelry store, auto dealership, high-end fashion)
- Sell few items but all are high end *KNOW WHAT THEIR COSTS ARE - negotiate prices within limits - have to take physical inventory, don't know if people are stealing, etc. *MOST COMMON METHOD - used at END of accounting period |
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Periodic
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(ex. oil delivery business)
- use formula to figure out costs at end of accounting period *physical inventory to find beg. and end inventory (silo example) |
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Periodic Formula
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Beginning inventory
+ Purchases ---------------------- Goods Available - Ending Inventory ---------------------- = Cost of Goods Sold |
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Credit Terms
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-accelerate Cash Flow
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3/10, net 30
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you have to pay within 30 days but if you pay in 10 you get a 3% discount
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Purpose of credit Terms
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to acclerate cash flow & operating cycle
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Sales Formula
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Gross Sales(# of units sold)
- Returns & Allowances - Discounts (15 % off, etc.) ---------------------------- = Net Sales |
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Transportation cost
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cost it takes retailer to get inventory to your place of business (ex: UPS)
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Delivery Costs
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become an operating expense- get goods to customer for their benefit, paid for by business
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Sales per sq. foot
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sales / sq. footage of store
*measure of efficiency (ex: Auntie Annes) |
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Same Store Sales
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how the same stores that are already open doing before you open new ones.
*How is underlying structure doing? |
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Liquidity
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short term or current obligations
- vendors - can u pay current liabilities? |
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Solvency
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-Long Term obligations
-whoever lent you money (banks, bondholders, etc.) |
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Liquidity groups
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Working Capital
Current Ratio Quick Ratio |
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Working Capital
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current assets- current liabilities
*higher # is better |
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Current Ratio
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Current Assets/ current liabilities
2:1 or higher is good |
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Quick Ratio
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quick assets / current liabilities
1:1 ratio is good |
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Quick Assets
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cash & accts. recievable
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Gray Area
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Liquidity or Profitability
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Accounts Recievable Turnover
(Operating cycle diagram) |
Credit Sales / Average X times
(ex. 365 / air turnover = 36.5 days) 2.0 Average= more accurate |
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Inventory Turnover
(operating cycle diagram) |
how fast to sell inventory
inventory = cost of goods sold/ average inventory (ex: days to sell inventory 365/20= 18 days) |
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Operating Cycle
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A/R Turnover + Inventory Turnover
(ex: add days 36.5 + 18 = 54.5 days) |
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Areas Under Gray Area
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Accounts Recievable Turnover
Inventory Turnover Operating Cycle |
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Solvency Group
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Debt Ratio
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Debt Ratio
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total liabilites / total assets
-most companies want a lower debt ratio -larger companies have higher cashflows, timing and payment guarenteed so they can have higher debt ratios |
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total assets
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current assets + fixed assets
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Profitability
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profit margins, operating profitability, gross profit, net profit & their margins
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Profitability Groups
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Return on investment
Earnings Per Share |
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Return on Investment
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Return on Assets
Return on Equity |
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Return on Assets
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operating concept
uses (operating profit/ average total) investment |
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Return on Equity
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measure of stockholders return
(net profit/ average stockholder's equity) |
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Earnings Per Share
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net income/ outstanding shares of common stock (average)
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Market Measures Groups
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Price- Earnings Ratio
PEG Ratio Dividend Yield Book Value Per Share |
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Price-earnings Ratio
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Market Price of Stock / earnings per share
(ex:$20/$1 = 20x earnings) |
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PEG Ratio
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Price Earnings/ Growth Rate
(20/20 = 1 --better if less) |
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Dividend Yield
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Dividend per share/ Market price per share
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Book Value per Share
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Stockholder's equity/ # of shares
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p/e
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current market price/ share
---------------------------- Earnings Per Share (Best measure of the potential of future earnings) |
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PEG
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ex: 10/10 =1.0
10/5 = 2.0 lower peg ratio means stock has better valuefor future growth |
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Book Value is
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misleading because all you are interested in are future earnings not book value
- you dont want company to be liquidated, you want them to do well |
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Most important activity
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Operating Activities (direct method)
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3 types of cash
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1)Treasury bills (90 day max. issued every week)
2)Money Market Funds (pay you like interest) 3)Commercial paper(issued by companies) |
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Statement of Cash Flows
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provide info. on receipts -when cash was recieved and dispersed during an accounting period (to external parties)
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Cash =
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Cash + Cash Equivalents
short term highly liquid stable value |
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3 types of activities
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Operating
Financing Investing |
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Reciepts
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Inflows
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Disbursements
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Outflows
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OA Reciepts
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1)Cash recieved from customers
2) Dividends & Interest Recieived |
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OA Disbursements
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1) Cash paid to suppliers& employees
2) Interest Paid 3) Income Taxes |
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FA Reciepts
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1) Short Term or long term borrowings
2) Issuance of Capital Stock |
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FA Disbursments
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1) Repayment of debt
2) Payment of dividends |
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IA Receipts
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1) Sale of Investments
2) Collection of loans 3) Sales of Plant Assets |
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IA Disbursements
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1) Purchase of Investments
2) Lending of Cash 3) Purchase of Plant Assets |
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Invented by FASB
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Indirect Method
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Indirect Method
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want to see change from net cash flow to net income
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Direct and Indirect methoda
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both only for OA!
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ID- Reconciliation of Net Cash Flow to Net Income
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depriciation and other non-cash expenses
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Id- Short Term
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TIMING differences between the "cash basis" and the "accrual basis" of acctg.
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ID- Non-operating gains and losses
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included in net income, are attributable to Investing or Financing activities not OA
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ID- Depreciation on
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Income Statement but not Cash flows stmt.
- no receipt or payment of cash |
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ID- difference in
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when disbursement shows up in cash flow or when its in income statement
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ID- in net income because
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doesnt happen everyday
- diff. in NON- OPERATING GAINS & LOSSES |
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FASB Method
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-permit both Direct and ID (get same answer)
- Reccomend Direct |
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If yo do Direct method
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you have to also do ID
- need to see 3 activities layed out -Most companies do ID because its less work |
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Both Direct and Indirect
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Net Cash Flow is the SAME the only difference is FORMAT!
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St'mt of Cash Flows, Income Statement & Balance Sheet
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Historical in Nature
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Cash Budget Forecast
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Used to manage cash & Cash Flows, financing plans. How much $ they need
(ex: $ for advertising) (construction) (Chemical Research) |
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Net Cash Flow From Operating Activities
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Plant Acquisition
Expenditures - Dividends --------------------- = Free/ discretionary cash flow *Higher # = better, EVERYONE likes this |
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Merchandisers
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wholesalers & Retailers - acquire goods for resale
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3 Ways to Permanently improve Cash Flow
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Defer Taxes
Peak Pricing Effective Product Mix |
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Defer Taxes
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-don't pay taxes until you take out and spend money
(ex: beach house swap no taxes) (ex: Rockerfeller) |
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Peak Pricing
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(ex: beach house rent is more during peak season)
(ex: Restaurants peak hrs. higher prices) |
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Effective Product Mix
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(ex: Macdonalds - ask if you want fries and drink - profit margins)
(shoe store - you need polish) - offer complimentary products to increase sales |
