Flashcards in B3: Financial Management Deck (27):

1

## What is Working Capital?

### CA - CL

2

## What is the Economic Order Quantity (EOQ) formula?

### E = (2SO)/C You can remember 2SOC - 2(Annual Sales*Order Cost/Carrying Cost Per Unit

3

## CAPM formula?

### risk free rate + beta * (expected market yield - risk free rate) RF+B(RM-RF)

4

## What is the ROI formula?

### income/ave investment; income = revenue - expense and investment = PPE and working capital

5

## Investment turnover =

### Cogs / ave investment

6

## Quick ratio =

### Current assets - inventories / current liabilities

7

## Inventory turnover =

### Cogs / average inventory

8

## Cost of equity capital =

### (dividend / market price of share) + % expected growth In div

9

## Why does profit margin = roi / asset turnover?

### You must convert return percentage per order to annual percentage (so you divide by turnover)

10

## APR of not using 2/10 net 30 for a 360 day year?

### (360/20) * (.02/.98)

11

## What is economic value added?

### Residual income - cost of capital

12

## What is operating leverage?

### The degree to which a firm uses fixed operating costs opposed to variable (high fixed cost = high leverage) - (change in EBIT) / (change in variable cost)

13

## What is the risk free rate + inflation rate

### Rate on a US treasury bill

14

## Current ratio =

### (Current assets - inventory - prepaid expenses) / current liabilities

15

## What is the diff between the quick ratio or Acid test and the current ratio?

### Current ratio is only extremely current assets. So it's current assets - inven - prepaid expenses over the current liabilities

16

## What is materials requirements planning (mrp)

### One of the first software based integrated information systems designed to improve productivity for businesses. A materials requirement planning (MRP) information system is a sales forecast-based system used to schedule raw material deliveries and quantities, given assumptions of machine and labor units required to fulfill a sales forecast.

17

## What is the discount rate?

### Rate of return that could be earned on an investment in the financial markets with similar risk

18

## T of F, you take the present value using the payback method

### F

19

## What is the internal rate of return?

### present value of the after-tax cash flows equals the initial investment on the project

20

## Define "working capital management"

### managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other.

21

## How do you find the APR of credit terms such at 3/10 net 45?

###

=

360

(Total pay period − Discount period)

×

Discount %

(100% − Discount %)

=

[360 / (45 − 10)] × [3% / (100% − 3%)]

22

## In the "acid test" ratio, the numerator is current assets less...

### prepaid expenses and inventory

23

## What is the "profitibility index"?

### (PV of net future cash inflows) / (PV of net initial investment) = Profitiblity Index

24

## How is the "beta" calculated?

### % Change in Stock Price / % Change in Market Price

25

## Define "earnings"?

### after tax net income, or profit

26

## What is "operating leverage"?

### presence of fixed costs in operations (small change in sales will make a large difference in profit)

27