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21 Cards in this Set
- Front
- Back
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Formula: Working Capital
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CA
-CL =WC |
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Current ratio
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CA/CL
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Quick (Acid Test) ratio
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Cash+mkt securities+receivables
divide by: CL |
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What are three motives for holding cash?
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1. transaction motive
2. speculative motive 3. precautionary motive |
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What are three disadvantages of high cash levels?
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1. negative arbitrage effect
2. increased attractiveness as a takeover target 3. investor dissatisfaction w/ allocation of assets |
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What is the formula for the annual cost/APR of a quick payment discount?
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360/pay period-discount period
TIMES discount/100-discount |
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What are two ways to expedite deposits?
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1. EFT
2. Lock box systems |
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What are four methods to delay payments?
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1. defer payments
2. drafts (checks) 3. line of credit 4. zero balance accounts |
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What is the cash conversion cycle formula?
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inventory conversion period (low)
+ receivables collection period (low) - payables deferral period (high) |
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What is the formula for the inventory conversion period?
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Avg inventory/avg cost of sales per day
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What is the formula for the receivables collection period? Days sales outstanding (DSO)
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avg receivables/avg sales per day
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What is the formula for the payables deferral period?
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avg payables/avg purchases per day
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What is the computation for required rate of return?
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real rate of return
+ inflation premium (IP) =risk free rate +risk premiums: interest rate risk (MRP) liquidity risk (LP) default risk (DRP) =required rate of return |
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What is the computation of the annual cost of factoring A/R?
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1. AR * fee%
2. AR-withheld * interest 3. subtotal: cost to company 4. subtract collections expense saved 5. subtotal: net cost 6. net cost/amt subject to interest =APR |
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What is the formula for # days receivables outstanding? (avg collection period)
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ending AR/Avg daily sales
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What are the four carrying costs of inventory?
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1. storage costs
2. insurance costs 3. opportunity costs of inventory investment 4. lost inventory due to obsolescence or spoilage |
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What is the formula for the Re-order point?
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safety stock + [lead time * #units sold per day/week]
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What is the formula for inventory turnover?
For avg days sales in inventory? |
COGS/Avg inventory balance
365/inventory turnover OR EI/COGS*365 |
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The Economic Order Quantity model assumes what 5 carrying costs?
(SOMII) |
S- Storage
O- Obsolescence M- Materials I- Insurance I- Interest |
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What is the formula for the EOQ Equation?
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E = sq root of: 2SO/C
E: Order size (EOQ) S: Annual Sales (units) O: cost per purchase order C: carrying cost per unit |
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What is the formula for Accounting Rate of Return (ARR)?
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incr in expected avg annual NI
divided by: Net initial investment |
