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46 Cards in this Set
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 Back
Current ratio

(Current assets)/(Current liabilities)
Liquidity 

Quick ratio

(Current assets less inventory)/(Current liabilities)
Liquidity 

Net working capital

(Current assets)  (Current liabilities)
Liquidity 

Debt to asset ratio

(Total debt)/(Total assets)
Debt 

Debt to equity ratio

(Longterm debt)/(Stockholders' equity)
Debt 

Times interest earned ratio

EBIT/(required interest payments)
Coverage 

Inventory turnover

Sales/(Average inventory)
Efficiency 

Average age of inventory (days sales in inventory)

(Average inventory)/(Sales per day)
Efficiency 

Average collection period (days sales outstanding)

(Average accounts receivable)/(Sales per day)
Efficiency 

Asset turnover

Sales/(Total assets)
Efficiency 

Payables turnover

COGS/(Average payables)
Efficiency 

Gross margin

(Sales  COGS)/Sales
Profitability 

Operating margin

EBIT/Sales
Profitability 

Net margin

(Net income)/(Sales)
Profitability 

Return on assets (simple form)

(Net income)/(Total assets)
Profitability 

Return on assets (two variations)

(Net income/Sales) x (Sales/Assets)
(Net margin) x (Asset turnover) 

Return on equity (simple form)

(Net income)/(Stockholders' equity)
Profitability 

Return on equity (two variations)

(Net income/Sales) x (Sales/Assets) x (Assets/Equity)
(Net margin) x (Asset turnover) x (Equity multiplier) 

Cash flow (when making estimates using capital budgeting)

(Net income) + (Noncash expenses)


Accounting rate of return (ARR)

(Average cash flow)/(Average investment)


Net present value (NPV)

(PV of estimated cash flows)  (PV of investment)


Benefit cost ratio

(PV of estimated cash flows)/(PV of investment)


Internal rate of return (IRR)

Rate such that (PV of estimated cash flows) = (PV of investment)


Economic value added (EVA)

(Net operating profit after taxes)  [(Capital in dollars x (Cost of capital)]


Market value added (MVA)

(Market value of equity)  (Book value of equity)


Cost of longterm debt

(Pretax cost) x (1  tax rate)


Cost of preferred stock

(Dividend per share)/(Current price per share)


Cost of retained earnings (3 methods)

Capital asset pricing model (CAPM): (Riskfree rate) + {(Beta) x [(Return on the market)  (Riskfree rate)]}
Bond yield plus risk premium: (Cost of firm's longterm bonds) + (Equity risk premium) Dividend discount model: (D1/Market price per share) + g, where D1 = next period's forecasted dividend, and g = forecasted growth rate in dividends and earnings 

Cost of common stock

[D1/(Market price per share  flotation cost per share)] + g, where D1 = next period's forecasted dividend, and g = forecasted growth rate in dividends and earnings


Cash conversion cycle

(Average inventory age) + (Average A/R age)  (Average A/P age)


Cash turnover

365/(Cash conversion cycle)


Minimum cash balance

(Estimated annual cash expenditures)/(Cash turnover)


Opportunity cost of holding minimum cash balance

(Minimum cash balance) x (Cost of capital)


Economic order quantity (EOQ)

Square root of [2 x (# of units used annually) x (fixed order cost)/(variable cost of carry per unit)]


Reorder point

[(Shipping time) x (Daily usage)] + (Safety stock)


Nominal interest rate (in terms of real interest rate and expected inflation rate)

[(1 + real rate) x (1 + inflation rate)]  1


APR

(Periods per year) x (Stated rate per period)


Financial leverage ratio

(Change in net income)/(Change in EBIT)
Leverage 

Operating leverage ratio

(Fixed costs)/(Total costs)
Leverage 

Value of preferred stock investment

D/K
(Dividend)/(Required rate of return) 

Value of bond investment

(PV of interest payments) + (PV of face value at maturity)


Value of common stock investment: 3 methods

Constant growth dividend discount model
Supernormal growth dividend discount model P/E model 

Value of common stock investment: Constant growth DDM

D1/(KG)
(Next period's forecasted dividend)/[(Required rate of return)  (Forecasted growth rate)] 

Value of common stock investment: P/E model

[EPS x (payout rate)]/(KG)


Current yield on bond

(Coupon payment)/(Current price of bond)


Firm's sustainable growth rate in EPS

ROE x (retention rate)
