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74 Cards in this Set

  • Front
  • Back
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 Base-Year 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 Solvency-Liquidity
2. Long Term Solvency-Leverage
3.Asset Management-Turnover
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
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
Current Liabilties
A very short-term 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 long-term 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
Cash Coverage Ratio
Common used as a measure of cash flow available to meet financial obligations
Cash Coverage Ratio formula
EBIT + Depreciation
"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
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
Receivables Turnover reflects____
Speed of Collection on sales.
Receivables Turnover Ratio Formula
Accounts Receivable
NWC Turnover

(Measures how much work we get out of our working capital)
Fixed Asset Turnover Ratio
Net Fixed Assets
Total Asset Turnover Ratio
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
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
Price-Sales 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.