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74 Cards in this Set
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Sources of cash

a firms activities that generate cash

Uses of Cash

A firms activities in which cash is spent.

An increase in the Assets section indicates.....

on a net basis the firm bought assets/ spent cash.

A decrease in the Assets section indicates.....

on a net basis the firm sold assets, generated cash.

A decrease in the Liabilities section indicates.....

the firm has made a net payment, used cash

Statement of Cash Flows

A firms financial statement that summarizes its sources and uses of cash over a specified period.

3 Categories of the Statement of Cash Flows

1. Operating activities
2. Financing Activities 3. Investment Activities 
Examples of Sources of Cash?

1. selling Assets
2. Increase of accounts payable 3. increase in common stock 
Examples of Uses of Cash?

1.Increase in Accounts receivable
2. Increase in Inventory 3. Decrease in notes payable. 
Common Size Statements

A standardized financial statement presenting all items in percentage terms. Balance sheet items are shown as a percentage of assets and income statements as a percentage of sales.

Common Size Statement of Cash Flows

Items can be expressed as a percentage of Total Sources (or Total Usages).

Common BaseYear Statements

A standardized financial statement presenting all items relative to a certain base year amount.

Financial Ratios

Relationships determined from a firms financial information and used for comparison purposes.

Using Financial Ratios eliminates_____.

Size problems when comparing companies.

5 Financial Ratio Categories

1. Short term SolvencyLiquidity
2. Long Term SolvencyLeverage 3.Asset ManagementTurnover 4. Profitability Ratios 5. Market Value Ratios. 
Short Term Solvency Ratios

1.Current Ratio
2.Quick Ratio(Acid Test Ratio) 3.Cash Ratio 4. NWC to Total Assets 5. Interval Measure 
Current Ratio Formula

Current Assets
 Current Liabilities 
Short Term Creditors would like to see a _______ Current Ratio

High/Positive.

Quick Ratio formula

Current Assets  Inventory
 Current Liabilties 
Quick Ratio measures...

the shorter term liquidity b/c it removes inventory which is the most illiquid current asset.

Cash Ratio

Cash
 Current Liabilties 
A very shortterm creditor would be interested in a companies

Cash Ratio

NWC to Total Assets

Net Working Capital
 Total Assets 
Interval Measure

Current Assets
 Average Daily operating costs 
The Interval Measure shows

How long a firm can operate during crisis, Strikes, cash flow issues etc.

Average daily operating cost for a start up is often called the

Burn Rate

Long Term Solvency ratios are used to measure_____

A firms ability to to meet its longterm obligations and debts/ Its Financial Leverage.

Total Debt Ratio

Total Assets  Total equity
 Total Assets 
Debt Equity Ratio

Total Debt
 Total Equity 
Equity Multiplier

Total Assets
 Total Equity 
Long Term Debt Ratio

Long Term Debt
 Long Term Debt + Total Equity 
Total Capitalization

Long term Debt+Total Equity

4 Long term Solvency Ratios

1. Total Debt Ratio
2. Long term Debt Ratio 3. Times interest earned ratio 4. Cash Coverage Ratio 
Times Interest Ratio

Measures how wel a company has its interest obligations covered.

Times Interest Ratio Formula

EBIT
 Interest 
Cash Coverage Ratio

Common used as a measure of cash flow available to meet financial obligations

Cash Coverage Ratio formula

EBIT + Depreciation
 Interest 
"Asset Utilization Ratios"

Turnover Ratios/Asset Management

Turnover Ratios are intended to

Describe how efficiently or intensively a firm uses its assets to generate sales.

Inventory Turnover Ratio Formula

Cost of Goods Sold
 Inventory 
Days Sales in Inventory formula

365 days
 Inventory Turnover 
Days Sales in Inventory

Shows the average days that inventory sits until it is sold.

Companies would like to have a _____ Turnover Ratio

High

Receivables Turnover reflects____

Speed of Collection on sales.

Receivables Turnover Ratio Formula

Sales
 Accounts Receivable 
NWC Turnover

Sales
 NWC (Measures how much work we get out of our working capital) 
Fixed Asset Turnover Ratio

Sales
 Net Fixed Assets 
Total Asset Turnover Ratio

Sales
 Total Assets 
3 Profitability Ratios

1. Profit Margin
2. Return on Assets 3. Return on Equity 
Profit Margin tells us_____.

How much profit is made from each dollar of sales.

Profit Margin Ratio

Net Income
 Sales 
Return on Assets is a measure of_______.

profit per dollar of assets.

ROA Formula

Net income
 Total Assets 
Return on Equity Formula

Net income
 Total Equity 
Return on Equity is a measure of______

How stockholders fared during the year. Said to represent the true bottom line

Earnings Per Share (EPS)

Net Income
 Shares Outstanding 
PE Ratio

Price Per Share
 Earnings Per Share 
PE Ratio Measures

How much investors are willing to pay per dollar of current earnings.

Higher PE Ratios often means_____.

the firm has significant prospects for future growth

PriceSales Ratio

Price Per Share
 Sales Per Share 
Market to Book Ratio

Market Value per Share
 Book Value per share 
Book value per share

Total Equity
 Shares Outstanding 
Tobins Q represents

The firms assets market value divided by their replacement cost

Firms with high Q Ratios tend to __________.

Have attractive investment opportunities OR significant competitive advantages.

Why is calculating a firms Q ratio difficult?

Because estimating a firms replacement cost is not an easy task.

The difference between ROA and ROE reflects the firms____.

Use of Debt Financing or Leverage.

Du Pont Identity

Popular expression of the ROE into 3 Categories:
1. operating efficiency 2. asset use efficiency 3. financial Leverage 
ROE can be broken down into____

Profit Margin X Total Asset Turnover X Equity Multiplier

ROA can be broken down into____

Profit Margin X Total Asset Turnover

When there is a conflict between market data and accounting data, which one has precedence?

Market Data

Internal uses of Financial Statements

1. Performance Evaluation
2. Planning for the Future 
External uses of Financial Statements

1. Decisions on whether to extend credit to other firms.
2. Investors. 3. Evaluating competitors 
One way of identifying similar companies is by using____.

SIC Codes

Standard Industrial Classification Codes

US government code used to classify a firm by its type of business operations. 4 digits.
