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26 Cards in this Set

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  • Back

Credit Default Swaps (CDS)

Securities that were created by financial institutions as insurance against borrowers defaulting on their loans

Proper risk-return management means what?

The firm must determine an appropriate trade-off between risk and return

Disadvantage of sole proprietorship

Unlimited liability to owner

How does the partnership form of an organization deal with the taxation of earnings?

Avoids the double taxation of earnings and dividends found in the corporate form of organization

Maximization of shareholders wealth is a concept that does what for a firm's wealth?

Increases wealth of the company

What items are subtracted from sales at operating income?

Operating Expenses (COGS and Selling and Administrative Expenses)

Gross Profit Equation

Sales - COGS

Operating Income Equation

GP - Operating Expenses

Earnings per Share is what?

A market prospect ratio that measures the amount of net income earned per share of stock outstanding


OR


The amount of money each share of stock would receive if all of the profits were distributed to the outstanding shares at the end of the year


OR


A calculation that shows how profitable a company is on a shareholder basis

Ratio analysis can be useful for what?

Used to evaluate operating performance of firm


OR


Compares performance record against similar firms in industry


OR


Additional evaluation of company management, physical facilities, and other factors

Asset utilization ratio measures speed at which firm turns over...

1) Accounts Receivable


2) Inventory


3) Long Term Assets

Asset utilization ratio relates what to what?

Balance sheet (Assets) to Income Statement (Sales)

A decrease average collection period could be associated with what?

Decrease in Accounts Receivable


OR


Increase in Sales

In using a systems approach to financial planning, it is necessary to develop what statements?

1) Pro forma income statement


2) Pro forma balance sheet


3) Cash budget

Expected Value of the total sales production

Expected Value = Probability x Total Value

Total Value Equation

Total Value = Units x Price

Required Production Calculation

Production Requirements = Projected Sales + Desired Ending Inventory - Beginning Inventory

The need for an increase or decrease in short-term borrowing can be predicted by what?

A cash budget

What is net cash flow?

Difference between monthly receipts and monthly payments

At the break-even point, a firm's profits are equal to what?

Zero (Total Revenue = Total Costs)

Financial leverage deals with what?

Amount of debt used in the capital structure of the firm

Lowest possible degree of operating leverage

1

Operating leverage deals with what side?

Asset side

Lowest possible degree of financial leverage

1

Financial leverage deals with what side?

Liability and Equity Side

In break-even analysis, the contribution margin is defined as what?

Contribution Margin = Sales revenue - Variable expenses