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74 Cards in this Set
- Front
- Back
Sources of cash
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a firms activities that generate cash
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Uses of Cash
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A firms activities in which cash is spent.
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An increase in the Assets section indicates.....
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on a net basis the firm bought assets/ spent cash.
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A decrease in the Assets section indicates.....
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on a net basis the firm sold assets, generated cash.
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A decrease in the Liabilities section indicates.....
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the firm has made a net payment, used cash
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Statement of Cash Flows
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A firms financial statement that summarizes its sources and uses of cash over a specified period.
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3 Categories of the Statement of Cash Flows
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1. Operating activities
2. Financing Activities 3. Investment Activities |
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Examples of Sources of Cash?
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1. selling Assets
2. Increase of accounts payable 3. increase in common stock |
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Examples of Uses of Cash?
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1.Increase in Accounts receivable
2. Increase in Inventory 3. Decrease in notes payable. |
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Common Size Statements
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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.
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Common Size Statement of Cash Flows
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Items can be expressed as a percentage of Total Sources (or Total Usages).
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Common Base-Year Statements
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A standardized financial statement presenting all items relative to a certain base year amount.
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Financial Ratios
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Relationships determined from a firms financial information and used for comparison purposes.
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Using Financial Ratios eliminates_____.
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Size problems when comparing companies.
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5 Financial Ratio Categories
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1. Short term Solvency-Liquidity
2. Long Term Solvency-Leverage 3.Asset Management-Turnover 4. Profitability Ratios 5. Market Value Ratios. |
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Short Term Solvency Ratios
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1.Current Ratio
2.Quick Ratio(Acid Test Ratio) 3.Cash Ratio 4. NWC to Total Assets 5. Interval Measure |
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Current Ratio Formula
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Current Assets
------------------------ Current Liabilities |
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Short Term Creditors would like to see a _______ Current Ratio
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High/Positive.
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Quick Ratio formula
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Current Assets - Inventory
--------------------------------------- Current Liabilties |
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Quick Ratio measures...
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the shorter term liquidity b/c it removes inventory which is the most illiquid current asset.
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Cash Ratio
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Cash
-------------------------- Current Liabilties |
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A very short-term creditor would be interested in a companies
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Cash Ratio
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NWC to Total Assets
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Net Working Capital
---------------------------------- Total Assets |
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Interval Measure
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Current Assets
------------------------- Average Daily operating costs |
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The Interval Measure shows
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How long a firm can operate during crisis, Strikes, cash flow issues etc.
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Average daily operating cost for a start up is often called the
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Burn Rate
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Long Term Solvency ratios are used to measure_____
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A firms ability to to meet its long-term obligations and debts/ Its Financial Leverage.
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Total Debt Ratio
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Total Assets - Total equity
------------------------------------------- Total Assets |
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Debt Equity Ratio
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Total Debt
---------------- Total Equity |
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Equity Multiplier
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Total Assets
---------------------- Total Equity |
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Long Term Debt Ratio
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Long Term Debt
-------------------------------------------- Long Term Debt + Total Equity |
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Total Capitalization
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Long term Debt+Total Equity
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4 Long term Solvency Ratios
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1. Total Debt Ratio
2. Long term Debt Ratio 3. Times interest earned ratio 4. Cash Coverage Ratio |
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Times Interest Ratio
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Measures how wel a company has its interest obligations covered.
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Times Interest Ratio Formula
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EBIT
---------------- Interest |
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Cash Coverage Ratio
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Common used as a measure of cash flow available to meet financial obligations
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Cash Coverage Ratio formula
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EBIT + Depreciation
------------------------------- Interest |
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"Asset Utilization Ratios"
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Turnover Ratios/Asset Management
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Turnover Ratios are intended to
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Describe how efficiently or intensively a firm uses its assets to generate sales.
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Inventory Turnover Ratio Formula
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Cost of Goods Sold
----------------------------- Inventory |
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Days Sales in Inventory formula
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365 days
---------------------------- Inventory Turnover |
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Days Sales in Inventory
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Shows the average days that inventory sits until it is sold.
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Companies would like to have a _____ Turnover Ratio
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High
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Receivables Turnover reflects____
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Speed of Collection on sales.
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Receivables Turnover Ratio Formula
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Sales
---------------------------- Accounts Receivable |
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NWC Turnover
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Sales
--------------------- NWC (Measures how much work we get out of our working capital) |
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Fixed Asset Turnover Ratio
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Sales
-------------------------- Net Fixed Assets |
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Total Asset Turnover Ratio
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Sales
--------------------- Total Assets |
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3 Profitability Ratios
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1. Profit Margin
2. Return on Assets 3. Return on Equity |
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Profit Margin tells us_____.
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How much profit is made from each dollar of sales.
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Profit Margin Ratio
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Net Income
---------------- Sales |
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Return on Assets is a measure of_______.
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profit per dollar of assets.
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ROA Formula
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Net income
----------------------- Total Assets |
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Return on Equity Formula
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Net income
---------------------- Total Equity |
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Return on Equity is a measure of______
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How stockholders fared during the year. Said to represent the true bottom line
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Earnings Per Share (EPS)
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Net Income
--------------------------------- Shares Outstanding |
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PE Ratio
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Price Per Share
-------------------------- Earnings Per Share |
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PE Ratio Measures
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How much investors are willing to pay per dollar of current earnings.
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Higher PE Ratios often means_____.
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the firm has significant prospects for future growth
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Price-Sales Ratio
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Price Per Share
----------------------------- Sales Per Share |
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Market to Book Ratio
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Market Value per Share
---------------------------------------- Book Value per share |
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Book value per share
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Total Equity
-------------------------------- Shares Outstanding |
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Tobins Q represents
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The firms assets market value divided by their replacement cost
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Firms with high Q Ratios tend to __________.
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Have attractive investment opportunities OR significant competitive advantages.
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Why is calculating a firms Q ratio difficult?
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Because estimating a firms replacement cost is not an easy task.
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The difference between ROA and ROE reflects the firms____.
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Use of Debt Financing or Leverage.
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Du Pont Identity
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Popular expression of the ROE into 3 Categories:
1. operating efficiency 2. asset use efficiency 3. financial Leverage |
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ROE can be broken down into____
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Profit Margin X Total Asset Turnover X Equity Multiplier
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ROA can be broken down into____
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Profit Margin X Total Asset Turnover
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When there is a conflict between market data and accounting data, which one has precedence?
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Market Data
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Internal uses of Financial Statements
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1. Performance Evaluation
2. Planning for the Future |
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External uses of Financial Statements
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1. Decisions on whether to extend credit to other firms.
2. Investors. 3. Evaluating competitors |
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One way of identifying similar companies is by using____.
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SIC Codes
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Standard Industrial Classification Codes
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US government code used to classify a firm by its type of business operations. 4 digits.
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