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36 Cards in this Set
- Front
- Back
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Capital budgeting |
The process of planning and managing long term investments |
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Capital Structure |
The mixture of debt and equity a firm uses. |
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Sole proprietorship |
A business owned by a single person Adv: keep all profits Disadv: unlimited liability |
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Partnership |
Two or more owners or entities Adv: keep and split all profits Disadv: unlimited liability, one person's actions can affect other members of partnership |
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Corporation |
A business created as a separate legal entity composed of one or more individuals or entities Adv: limited liability Disadv: government regulation and taxation |
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The goal of financial managers |
To maximize the current value per share of stock. |
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Agency problem |
The potability of a difference between the wants and needs of stockholders (owners) vs management. |
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Current Ratio |
Current Assets/Current Liabilities Used to show a firms ability to pay for debt. Short term |
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Quick (acid test) ratio |
(Current assets - inventory)/current Liabilities Used because inventory is the least liquid asset. A large inventory is a sign of short term trouble. Inventory isn't always correctly valued. Short term |
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Cash ratio |
Cash/current Liabilities Used for immediate liquidity. Short term |
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Net working capital to total assets |
Net working capital/total assets Indicates level of short term liquidity. Short term |
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Interval measure |
Current assets/avg daily operating costs Used to tell how many days of operating a company can do before it needs new financing. Short term |
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Total debt ratio |
(Total assets - total equity)/total assets Takes all debts into account, compared to total assets. Long term solvency |
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Debt-Equity ratio |
Total debt/total equity (top and bottom equal 1) Used with total debt and equity multiplier |
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Equity multiplier |
Total assets/total equity |
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Long term debt ratio |
Long term debt/(long term debt+total equity) Used because short term debt changes so much so they leave it out. |
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Times interest earned (TIE) ratio |
EBIT/interest Measures how well a company covers it's interest obligations Long term |
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Cash coverage ratio |
(EBIT+depreciation)/interest Used because depreciation is a non cash expense and should be added back in. EBIT+depreciation=EBITD |
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Inventory turnover |
COGS/inventory Used to show how many times the company sold their inventory. Days sales in inventory is 365/inv turnover |
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Financial leverage |
The amount of debt a company uses to finance itself. Debt magnifies both gains and losses. |
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Average Tax Rate |
Tax bill/total taxable income. Your average taxes. |
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Marginal tax rate |
The amount of tax paid on the next at. |
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Operating Cash Flow |
EBIT+depreciation-taxes because depreciation is a non cash asset |
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Receivables turnover |
Sales/accounts receivable How many times you can sell for your given receivables. The speed of selling. Days sales in receivables is 365/this |
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NWC ratio |
Sales/NWC How much "work" the company gets out of NWC. How much sales they generate from their NWC. |
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Fixed assets turnover |
Sales/net fixed assets Measures how much sales is generated for every dollar in fixed assets. |
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Total asset turnover |
Sales/total assets How much sales is generated off each dollar of assets. |
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Profit Margin |
Net income/sales Amount of profit per dollar in sales. Want to be kind of high |
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Return on assets |
Net income/total assets Profit per dollar spent on assets |
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Return on equity |
Net income/total equity Measures how well stockholders did. True bottom line on profitability. |
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Net profit margin |
Net income/sales |
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Operating profit margin |
Operating income(ebit)/sales |
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Gross profit margin |
Gross profit/sales |
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Price earnings ratio |
Price per share/earnings per share |
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Earnings per share |
Net income/#shares outstanding |
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Market to book ratio |
Market value/book value |
