EZC1 Flashcards

1
Q

cash flow from CFO (2.5)

A

NI + depreciation + operating asset changes (non-cash) + liability changes (not NP) = CFO

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2
Q

about cash flow from investing/CFI (2.5)

A

change in PP&E

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3
Q

about cash flow from financing/CFF (2.5)

A

finance account changes (LTD, NP, E), plus dividends paid (old RE + NI - new RE)

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4
Q

calculation for dividends (2.5)

A

dividends = (old RE + net income) - new RE

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5
Q

current ratio (3.2)

A

current ratio = current assets/current liabilities

  • don’t want to see it fall below 1
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6
Q

quick ratio (3.2)

A

quick ratio(acid test) = (current assets - inventory)/current liabilities

*accounts for only most liquid assets (removes inventory)

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7
Q

average collection period (3.2)

A

AR / Daily credit sales

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8
Q

inventory turnover (3.2)

A

COGS / inventory

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9
Q

total asset turnover (3.3)

A
  • calculates $$ in sales generated per dollar of assets it owns
  • higher is better

total asset turnover = sales/total assets

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10
Q

fixed asset turnover (3.3)

A

fixed asset turnover = sales/fixed assets

*fixed is total assets - current assets (or all non-current assets)

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11
Q

debt ratio (3.4)

A

debt ratio = total debt/total assets

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12
Q

times interest earned (3.4)

A

times interest earned = EBIT/interest expense

*tells how many times a company could pay its interest expenses given its profit

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13
Q

ROA and ROE (3.5)

A
  • ROA: net income/total assets
  • ROE: net income/total equity
  • higher ROE than ROA means effectively using debt
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14
Q

DuPont Equation (3.6)

A

ROE = Net profit margin (net income/net sales) * asset turnover * leverage multiplier

*leverage multiplier=assets/equity

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15
Q

net profit margin equation (3.6)

A

net profit margin = NI/net sales

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16
Q

% of sales method (4.2)

A
1 Project sales revenues and expenses
2 Forecast change in spontaneous balance sheet accounts
3 Deal with discretionary accounts
4 Calculate retained earnings
5 Determine total financing needs/assets
6 Calculate DFN
17
Q

discretionary financing need (4.2)

A

DFN = projected total assets - projected total liabilities - projected owners’ equity

18
Q

4 ways to decrease DFN (4.4)

A

1 slow sales growth
2 examine capacity constraints (fixed asset needs)
3 lower dividend payout (and increasing RE)
4 increase net margin (means more cash retained)

19
Q

sustainable growth rate/SGR (4.4)

A

SGR = ROE(1-b)

*b is dividend payout ratio, or dividends/net income

NI/S * S/A * A/E * (1-D/NI)
NI/E * (1-D/NI)

20
Q

discount rate and bond price relationship (6.6)

A

inc/dec and dec/inc

*discount changes the I/YR rate on the calculator

21
Q

preferred vs common stock (7.3)

A
  • common: variable return, represents equity in a firm, vote for board, corporate governance, lowest claim in payout, can be bought and sold freely
  • preferred: hybrid security with elements of debt and equity, fixed dividend payments, priority payout before common stock dividends, usually non-voting stock, lowers company cost of capital and increases value
22
Q

CAPM (9.3)

A

required return = risk free rate+ beta(return on market-risk free rate)

*risk premium = return on market (Rm)-risk free rate (Rrf)

23
Q

Build-Up Method (9.3)

A

bond yield + equity risk premium + micro-cap risk premium + start-up risk premium = required rate or return

24
Q

WACC definitions (9.4)

A
C=mv common stock
P=mv preferred stock
D=mv debt
V=(C+P+D)
k_cs= cost common stock
k_ps=cost preferred
k_d=cost debt
t=tax rate
25
Q

3 key attributes that capital budgeting should possess (11.3)

A

1 should include all cash flows occurring during the life of the project
2 timing of future cash flows (time value of money)
3 account for varying levels of risk

26
Q

3 equations for time values of money (11.3)

A

1 payback period - simplest and least accurate.
2 NPV - present value of future cash flows. Positive NPV=accept project, negative=reject.
3 IRR

27
Q

initial outlay calculation (11.5)

A

purchase price of asset + shipping and install costs + investment of working capital +/- sale form old asset = net initial outlay
*also account for taxes on sale of old product