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78 Cards in this Set
- Front
- Back
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Current Assets
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Cash, Marketable securities, AR, Prepaid expenses, Inventories
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Fixed Assets
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Land,intangables, plant and equipment, less depreciation
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Investment decisions involve what on the balance sheet?
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Current and Fixed Assets
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Current liabilities
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Accounts Payable, notes payable, accrued salaries
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Long-term liabilities
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Mortagage debt, debentures, long term bonds etc
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Owners Equity
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Common stock, retained earnings, add paid in capital
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Financing Decisions involve what on the balance sheet?
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Liabilities and owners equity
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Can you pay bills with retained earnings?
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Hell no! they are already tied up in assets.
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Two things you can do with your net income
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Pay it out as dividends, retain it within the firm "plowback"
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New Retained Earnings =
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Old Retained Earnings + net income - dividends
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Cash Flow from Operating
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Net income + annual Depreciation expense, change in: AR, Inventory, AP, Other current liabilities
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Cash Flow from Investing
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change in PP&E(ignore depreciation)
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Cash Flow from Financing
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change in: Long term debt, notes payable, Equity, Dividend Payments
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SSR (comparing companies statements)
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Size, Strategy, and Risk
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Common-Size Balance Sheets
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Compute all accounts as percent of total sales
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Common-Size Income Statements
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Compute all line items as percent of Sales
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Common-Size Statement of Cash Flows
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show each item as percentage of total sources or uses
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Trend Analysis
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Compare firm's financial ratios with its ratios in previous years
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Cross-Section Analysis
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We can compare firm's financial ratios with the industry
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Liquidity
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Short term solvency of a firm
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Efficiency
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Asset Utilization
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Leverage
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Long term solvency of a company
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Current Ratio
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Current Assets/Current Liabilities
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Quick Ratio
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(Curr Assets-Inventory)/ Current liabilities
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Average Collection Period
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AR/Daily Credit Sales
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AR Turnover
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Credit Sales/AR
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Inventory Turnover
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COGS/Inventory
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Total Asset Turnover
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Sales/Total Assets
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Fixed Asset Turnover
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Sales/Fixed Assets
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OIROI
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Operating Income/total Assets
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Debt Ratio
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Total Debt/Total Assets
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Times Interest Earned
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EBIT/Interest expense
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ROA
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Net income/Total Assets
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ROE
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Net Income/Total Equity
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EBIT Same as
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Operating Income
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Gross Margin
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Gross Profit/Sales
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Operating Margin
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EBIT/Sales
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Net Margin
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Net Income/Sales
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DuPont Equation: ROE=
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Net profit margin(Net income/Sales) X Asset Turnover(Sales/Assets) X Leverage Multiplier(Assets/Equity)
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Daily Credit Sales
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Credit Sales/365
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Financial Forecasting Three Steps
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Project Sales rev and expense, estimate current and fixed assets needed, analyze financing/calculate DFN
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DFN
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Discretionary Financing Needed, Plug figure. AKA EFN
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Spontaneous Accounts
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Most Current assets, Accounts payable, accruals
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Non-Spontaneous Accounts
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Notes Payable, Long term liability Accounts, Common Stock, interest, retained earnings
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forecasting Retained earnings equation:
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old RE + (projected sales X Net Margin X (1-payout ratio))
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payout ratio
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Dividend/NI
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Projected Financing Needed equation
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Projected total assets- projected total liabilities - projected owners equity
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Sustainable Growth Rate
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Not the optimal growth rate, just max growth can achieve with current financial structure/policies
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sustainable growth rate equation
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ROE(1-dividend payout ratio)
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Three steps to Cash Budget
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Determine cash receipts, estimate outflows, create the cash budget
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Determine Cash Receipts
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calculate AR, based on the credit terms
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Estimate Cash outflows
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calculate payments of labor, AP etc for the current month
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Minimum Cash Balance
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amount you must borrow up to in a cash budget, borrowing ups the cumulative loan balance
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Cumulative loan balance
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if cash > min cash then pay it down, add to it if cash < min cash
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TVM Compounding
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translate $1 today into what it will be in the future
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TVM Discounting
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Turn a future $1 into what it is today
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Annuity
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Equally spaced sequence of equal cash flows
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Perpetuity Equation
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go on forever, PMT/I
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Ordinary Annuity
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End mode annuity
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Annuity Due
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Begin Mode Annuity
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APR and equation
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Annual Percentage Rate, periodrate*(# of periods per year)
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Effective Annual Rate (EAR)
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actual rate paid after accounting for compounding during the year
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Bond Coupon
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Fixed interest paid in intervals, par value at maturity
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Bond Valuation
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discount the annuity cash flow and the single sum
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assume all bonds are
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1000 par value, semi annual interest and original annuity
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Yield to Maturity
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Average annual rate of return investors expect to receive on a bond if held to maturity
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Current Yield
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estimate of YTM that ignores time value of moeny
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Current Yield equation
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annual coupon payment/current price of bond
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Premium Bond
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(price > par value) YTM < CY < Coupon
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Discount Bond
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(price < par value) YTM > CY > Coupon
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Bond rates go up, then price
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goes down
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if coupon rate < discount rate
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sells at a discount
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if coupon rate > discount rate
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sells at a premium
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Zero Coupon Bonds
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Return is determined by the price discount
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Bonds (ZR)
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zero interest, Annual interest, not semi-annual interest unless comparing to one
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Two Factors that influence Bond Price Sensitivity
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Longer Maturity, lower coupon
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Duration
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The % change in price for a 1% change in rates
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The higher the duration...
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the bigger the change in price
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