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Budgeting Flashcards

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1
Q

Simple Linear Regression

A

y=a+Bx

Y=dependent variable. Y may total costs measured in dollars for a cost function

x=Independent variable. Variable that explains Y. For example, in a cost function, x would be total activity

a=Y axis intercept. Y is total costs, then a would measure total fixed costs

B=Slope of the regression line. Based upon factors above, B measures the change in total costs due to a one-unit change in output.

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2
Q

Simple Interest

A

SI=P(I)(N)

P=Principal
I=Interest
N=Number of periods

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3
Q

Compound Interest

A

P(1+I)N

P=Principal
I=Interest
N=Number of periods

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4
Q

Weighted Average Cost of Capital

A

Cost of equity multiplied by the percentage in equity structure + cost of debt multiplied by the percentage in debt structure

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5
Q

Weighted Average Cost of debt

A

Effective annual interest payments/debt outstanding

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6
Q

After-tax cost of debt

A

Pretax cost of debt*(1-tax rate)

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7
Q

High/Low Method Formula

A

1) High Volume-Low Volume
2) High Cost-Low Cost
3) Cost/Units= Variable Cost
4) Total Cost=Fixed Cost+(Variable Cost per Unit*Number of Unit)

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8
Q

Cost of Preferred Stock

A

Preferred Stock Dividends/Net proceeds of preferred stock

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9
Q

CAPM

A

Risk Free rate+(Beta*(Market Return-Risk free Rate)

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10
Q

Cost of retained earnings

A

D1/P+g

P=Current per price of stock
D=Dividend per share
G=Constant rate of growth in dividends.

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11
Q

Absorption Approach Formula

A

Revenue- Less COGS=Gross Margin-Less Operating Expenses

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12
Q

Contribution Approach

A

Revenue
-Variable Costs (DL, DM, Variable MOH, etc.)
=Contribution Marging
-Fixed Costs (Fixed Overhead, Fixed Selling and General and Adminstrative)

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13
Q

Bond Yield Risk Premium

A

Cost of R/E=Pre tax cost of long term debt+Market Risk Premium

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14
Q

Treatment of SG&A

A

Absorption Approach-Both Variable and fixed are part of operating expenses and reported separately from COGS

Contribution Approach-Part of total variable costs.

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15
Q

Contribution Ratio formula

A

Contribution Margin/Revenue

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16
Q

Growth Rate

A

Retention Ratio*Return on Equity

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17
Q

Return on investment

A

NI/Invested capital

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18
Q

Breakeven point in Units

A

Total fixed costs/Contribution Margin per Unit

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19
Q

Breakeven point in Dollars

A

Unit Price*Breakeven point in units

or

Total fixed costs/Contribution Margin Ratio

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20
Q

Sales Unit for Desired Profit

A

Sales (Units)=Fixed Cost+Pretax profit/contribution margin per unit.

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21
Q

Sales Dollars for Profit

A

Variable costs+fixed costs+pretax profit

Or

Fixed cost+pre tax profit/contribution margin ratio

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22
Q

Margin of Safety

A

Sales in dollars-Breakeven point

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23
Q

Margin of Safety %

A

margin of safety in dollars/Sales

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24
Q

Target Cost

A

Market Price-Profit

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25
Return on Assets
NI/Assets
26
Return on Equity
Net Income/Equity
27
Current Ratio
Current Assets/Current Liabilities Higher Ratio the better, as it shows easy to pay off short term liabilities
28
Working Capital
Current Assets-Current Liabilities
29
Quick Ratio
Cash and Cash Equivalents+Securities+Receivables Divided By Current Liabilities Higher Ratio the better, as it shows easy to pay off short term liabilities
30
Cash Ratio
Cash and Cash Equivalents+Securities Divided By Current Liabilities Too high of a rate indicates a company is holding too much cash.
31
Opertiating Cash flow ratio
Cash Flow from Operations/Current Liabilities Higher number, indicates company is generating cash from its core activities to pay liabilities
32
Working Capital Turnover
Sales/Average Working Capital Higher the number the better, indicates profitable company.
33
Inventory Conversion Period
365* Average Inventory/Sales Lower the days the better, indicates how quickly inventory is sold.
34
Receivables Collection Period
365* Average Net Receivable/Net Credit Sales Lower the days the better, indicates how quickly sales are collected.
35
Payables Deferral Period
365* Average AP/COGS Lower the days the better, indicates how quickly company pays its vendors
36
Operating Cycle
Inventory conversion period+receivables collection period Represents how quickly it takes for a company to turn inventory into cash.
37
Cash Conversion Cycle
Inventory conversion period+receivables collection period-Payables Deferral period Represents how quickly it takes for a company to turn move cash through the operating cycle
38
Debt to Equity Ratio
Total Liabilities/Equity Higher ratio, indicates company employs more risk.
39
Debt to Assets Ratio
Total Liabilities/Assets Higher ratio, indicates company employs more risk.
40
Times Interest Earned Ratio
EBIT/Interest Expense Higher Number, indicates company has more funded to cover its required interest expense.
41
Gross Margin
Sales-COGS/Sales Higher the better
42
Operating Margin
Operating Income/Sales Higher better, indicates more sales generated through fewer costs.
43
Net Profit Margin
Net Income/Sales Higher, means company is profitable taking all costs associated with product into consideration to generate sales.
44
Return on Equity
Net Income-Preferred Dividends/Average Equity
45
Return on Assets
Net Income/Average Assets
46
Debt to Total Capital
Total Debt/Total Capital
47
Debt to equity ratio
Total Debt/Equity
48
Times Interest earned ratio
Earnings Before Interest and taxes/Interest Expense
49
Reorder Point
Safety Stock+(Lead time*sales during time)
50
Required Levels of Production
Budget Sales +Desired ending inventory -Beginning inventory =Budgeted Production
51
Direct Materials budget
Budget Sales +Desired ending inventory -Beginning inventory =Budgeted Production
52
Cost of Direct Materials to be Purchased
Cost of Direct Materials to be Purchased* Cost per units
53
Direct Labor Budget
``` Budgeted Production * Hours required to produce units =Number of hours * hourly rate =Total Wages ```
54
COGS Manufactured and Sold Budget
COGS manufactured +Desired ending inventory -Beginning inventory =COGS
55
Standard Direct Costs
Standard Price*Standard Quantity
56
Standard indirect costs
Standard application rate* Standard quanity
57
Direct Materials Variance
DM Price Variance=Quantity Purchased* (Actual Price-Standard Price) DM Quantity Usage variance=Standard Price*(Actual Quanity Used-Standard Quantity Allowed)
58
Direct Labor Variance
DL Rate Variance=Hours Worked* (Actual Rate-Standard Rate) DL Efficiency Rate=Standard Rate*(Actual Hours Worked-Standard Hours Allowed)
59
Variable Overhead Rate
Hours Worked* (Actual Rate-Standard Rate)
60
Variable Efficiency Variance
Standard Rate* (Actual hours-Standard hours allowed for actual volume)
61
Fixed Overhead Budget
Actual Fixed Overhead-Budgeted Fixed Overhead
62
Fixed Overhead Volume Variance
Budgeted Fixed Overhead-Standard Fixed Overhead cost to proudction
63
Sales Price variance
Actual SP/Unit * Budget SP/Unit
64
Sales Volume Variance
(Actual Sold Units- Budget Sales Units) | *Standard Contribution margin per unit
65
Annual Cost of quick payment discount
(360/Pay period-discount period)*(Discount/100-Discount %)
66
Account Receivable Turnover
Credit Sales/Average A/R
67
Days Sales Outstanding
(Average Accounts Receivable/Credit Sales) * Days in Period
68
Annuity Present Value
C*(1-Present Value Factor/r) C*(1-(1/1+r)/r C=Amount of annuity r=rate of return t=number of years
69
Profitability Index
Present Value of net future cash inflow/Present Value of net initial investment
70
Payback Period
Net initial investment/annual net after-tax cash flow
71
Per Share Valuation
Divdend/Required Return
72
Price of equity formula
Current price at period t=Dividend 1 year after period t/Required Return-Growth rate
73
Required Rate of Return
Risk Free rate+Beta(Expected return on market-Risk free rate_
74
P/E Ratio
stock price/EPS in one year
75
Trailing P/E Ratio
Stock price/EPS for past year
76
PEG Ratio
(Stock Price/Expected EPS)/Growth Rate
77
Valuing Equity with PEG Ratio
PEG*Expected EPS*Growth Rate
78
Price to Sales Ratio
Price/Expected Sales in one year
79
Valuing Equity with Price to Sales
(Price/Expected Sales in one year)*Expected Sales in one year
80
Price to Cash Flow
Stock Price/Expected Cash Flow in One Year
81
Valuing Equity with Price to Cash Flow
(Price/Expected Cash Flow in one year)*Expected Cash Flow in one year
82
Price to Book Ratio
Stock Price/Book Value of Common Equity
83
Valuing Equity with Price to Book
(Price/Expected Book Value in one year)*Expected Book Value n one year

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