Familar? Flashcards
(141 cards)
1
Q
What is beta of the investment?
A
Beta indicates how much and in what direction a rational investor expects an investment to move given a 1% change in the market
2
Q
What is the challenge with recognizing and measuring opportunity costs?
A
The challenge with opportunity costs is that there is not a recorded transaction in the accounting records to indicate and put a dollar value on the cost
3
Q
What is interest rate risk?
A
Interest rate risk is the risk that market interest rates will vary and impact the value of interest-bearing securities, such as bonds
4
Q
Can sunk costs take place in the future
A
If future costs are committe and cannot be avoided by making the decision at hand, these future costs are considered “sunk” and are not relevant to the decision
5
Q
What is the C-V-P formula to solve for sales volume?
A
(Sales Price x Volume) - (Variable Cost per unit x Volume)- Total Fixed Costs = Profit
6
Q
What is the cpaital asset pricing model? CAPM
A
CAPM describes the relationship between risk and expected return. It is used to determine how much return investors require for an investment given its systematic risk (beta)
Ke= Rf + B (Rm- Rf)
7
Q
Triple bottom line?
A
Business sustainabilty is oftern defined as managing the organization’s performance in terms of a triple bottom line. Sustainability is a process by which companies manage their financial, social, and environmental risk, obligations, and opportunities. People, profit, planet
8
Q
What does the phrase “tone at the top” mean?
A
A clear signal and consistent example of ethical practice by the organization’s executive team. If the tone at the top of the organization is inconsistent with the mission statement on ethics, we can expect problems with professional ethics throughout the org
9
Q
Describe morality and virtue
A
Morality is a set of rules and principles that answered the question: What should I do?
Virtue is defined by our attititudes and character traits. A virtue based approach to ethics answers the question, What kind of person should I be? A person who has developed virutes through learning and practice will be naturally inclined to act in ways that are consistent with moral principles
10
Q
How do business ethics at the firm level differ from business ethics at the indidivudal level?
A
At the firm level, business ethics are expressed mission, standards, culture of behavior that sets the ethical tone of the organization and provides direction to individual managers in their work and decision making
At the individual level, business ethics are a set of principles and personal commitments that guides the professional in the scope of his or her job when a conflict of values is presented
11
Q
What are two ways accounting and finance professionals can improve their ability to be ethical?
A
Recognizing and anticipating WHEN ethics will be challenged in a particular situation
Recognizing and describing exactly HOW ethics are being challenged in a particular situation
12
Q
How can discount rates be used to represent inherent risk on one capital investment versus another in capital budgeting?
A
Use higher discount rate or the investment with a higher inherent rate
13
Q
What is the basic payback formula with constant cash flow?
A
Investment/Cashflow
14
Q
What does Payback method tell us?
A
Payback method measures the amount of time it takes for the original net cash investment to be recovered
15
Q
When NPV method and IRR method disagree on how to prioritize different investments, which method generally provides the most consistently correct comparison and why?
A
The most consistently correct comparison method is NPV. This is because the IRR method struggled with high IRR levels when cash flows vary significantly from period to period
16
Q
Explain how to calculate the IRR of a potential investment
A
- Find the discount rate that discounts all future cash flows to be equal to the net cash investment
- The discount rate that balances the discounted future inflows with present investment outflow is the IRR (Internal Rate of Return)
17
Q
What does a positive NPV indicate about IRR?
A
A positive NPV indicates that the IRR is higher than the discount rate used to compute NPV
18
Q
Explain how to calculate the NPV of a potential investment
A
- Discount all future cash flows to “Year 0” using an effective discount rate and the appropriate number of time periods
- Compare the present value of al future cash flows to the net cash investment
- IF the present value of future cash flows is more than the net cash investment, the capital investment NPV is greater than zero (positive)
19
Q
What is the connection between time and interest rates when considering amounts of money?
A
Using an interest rate makes one amount of money equal to a different amount of money at a different point in time
20
Q
What is the difference between the direct and indirect approach in calculating operating cash flows?
A
An indirect approach is to add back all non-cash expenses to after-tax operating profit.
Indirect approach= After -tax profit + Non-Cash expense
A direct approach to add the cash value of the tax shield to the after cash flows from operations
Direct approach: After-tax cash + tax shield
21
Q
What are examples of financial analysis tools?
A
NPV, IRR, Payback, ROI
22
Q
Risk due to uncertainty in the capital investment can be managed by increasing flexibility on certain characteristics in the investment. What are those characteristics?
A
- The ability to accelerate or delay future payments involved in the capital investment
- The ability to expand or educe the size of the investment in the future
- The ability to extend or early exit the timeline of the investment commitment
23
Q
Describe three reasons or purposes for making significant investments in a business that stretch across long time horizons
A
- Operational purposes: Focus on either reducing operating costs or increasing revenue
- Strategic purposes: Often concentrated on strengthening the organization’s competitive position in its market place
- Regulatory purposes: While not done to enhance profit, allow the organization to continue to operate in its industry or market`
24
Q
Define capital investments
A
- The core assets and resources for the organizations
- Both tangible and intangible investments
- Worth significant sums of money for the org
- Have a long future horizon
25
What is the inherent problem with estimating the likelihood of an outcome?
The estimation process can be subject to bias due to subjectivity involved in judging the likelihood of an outcome
26
When a competitive oligopoly market emerges during the maturity stage of the product life cycle, what can a company do to compete?
- Cut prices aggressively, but this usually initiates an undesirable price war
- Differentiate its services by offering more product features
- Market more in order to strengthen the brand name
27
What is price elasticity of demand?
Price elasticity of demand describes how much movement in demand the org can expect from movement in price. If demand is elastic, then the increasing price will decrease overall revenue. If demand is inelastic, then increasing the price will increase overall revenue.
1. Calculate demand percentage change and price percentage change
2. Calculate price elasticity of demand
Demand % Change/ Price % Change
If > 1 = Elastic
If < 1 = Inelastic
If =1 then unitary elastic
28
What causes supply or demand curves to shift?
Events that cause supply to change or shift to the right: improvements to tech, reduction of production costs, growth in producers, decreases in price of substitute products. Opposite events shift supply to the left.
Events that cause demand to change or shift to the right: upsurges in preferences for the product, price increases for product substitutes, price decreases for complementary goods or services. As income increases, demand for luxury goods will shift to the right, but demand for inferior goods will shift to the left.
29
What causes an oversupply or shortage?
If the price is too high, then there will be an oversupply of the product or service in the market place because suppliers will provide more than consumers demand.
If the price is too low, then there will be a shortage (or undersupply) of the product or service in the marketplace because consumers will demand more than suppliers will provide.
30
What happens to supply and demand as the price of a good or service increases?
All else remaining equal, as the price of a good or service increases, the quantity of the supply will increase. Conversely, as the price of a good or service increases, the quantity of demand will decrease.
31
When an organization has a resource constraint, what is a two-step process to determine which products or services to prioritize?
1. Compute contribution margin per unit of output for each product or service using the constraint
2. Multiply contribution margin per unit of output by the number of outputs generated based on each unit of resource input
32
What accounting template can be used to evaluate the relevant revenues and costs of a division, product line, customer group, or another for-profit business unit?
Revenues - variable costs = Cm - direct fixed costs = business unit profit
33
How do you determine whether to process a product further?
Compute the change in cost (marginal) and compare it to the change in revenue (marginal) If the marginal revenue exceeds the marginal cost, then process further to the next sales point
34
What is a two-step process to analyze relevant costs?
1. Identify the cot affected by the decision as the relevant cost
2. Determine the amount by which relevant cost affects the decision, in other words, how much additional (incremental) cost is created by the relevant cost. This is known as marginal cost.
35
How is an opportunity cost typically measured?
By the revenue less the variable costs less direct fixed costs represented by the next best opportunity given up to make the current decision
36
Why is it important to recognize when capacity is a factor in the current decision for an org?
When the org is running out of capacity, it has more opportunities than it has the capacity to pursue and needs to make choices about how to best optimize the capacity. It is those situations with limited capacity where opportunity costs occur.
37
Describe the concept of cost and value when considering opportunity costs
Value given up in the next best opportunity is a cost of the current decision whereas costs that would have been paid in the next best opportunity are a value of the current decision
38
What are sunk costs?
Sunk costs are unchanged by the decision about to be made and are never relevant
39
What are irrelevant costs?
Irrelevant costs (unavoidable costs) are costs not affected by the decision about to be made
40
What are relevant costs?
(Avoidable costs) are defined as the costs affected by the decision about to be made
41
How is sensitivity analysis performed with the C-V-P formula?
While holding the other inputs constant, adjust one of the four CVP inputs (price, volume, variable cost rate, total fixed costs) to observe the possible range of uncertainty for that input. Then determine if the impact on profit is unacceptable.
42
What is the computation for margin of safety percentage?
Margin of Safety / Current Sales (In units or dollars)
Or
Margin of Safety/ Breakeven sales
43
What is the computation for margin of safety for sales in revenue dollars?
Current sales revenue - break even sales revenue
44
What is the computation for margin of safety for sales in units?
Current sales units - breakeven sales units
45
What is basic computation for margin of safety?
Current sales - breakeven sales
46
What kinds of opportunities and threats in the business environment crease uncertainty for an org?
Many business issues that increase uncertainty for an org, including issues involving competitors, suppliers, customers, government, environment, society, and tech
47
When computing C-V-P analysis on the volume of units, what are three steps of the basket method?
1. Make a basket with the sale mix in units
2. Solve the cvp for the basket
3. Open the basket and multiply the sales mix
48
What is the basic approach when computing the C-V-P analysis on the volume of sales dollars?
1. Determine the sales mix ratios based on revenue dollars
2. Use total variable cost ratio to solve cvp formula for total revenue dollars
3. Break out the total revenue dollars to the products using the sales mix ratios
49
What is a sales mix?
The sales of each product or service relative to total sales in the org
50
What is the conversion formula to change after-tax profits to pre-tax profits for use in C-V-P analysis?
After Tax Profit / (1- Tax Rate)= Pre-Tax Profit
51
Are the factors in the C-V-P formula in pre- or after-tax dollars?
Pre-tax dollars. It is critical that the profit target is converted from after-tax profit to pre-tax dollars before using the C-V-P formula.
52
What is the formula for targeted profit?
It is the same basic C-V-P formula but set equal to the targeted profit.
Revenue- Variable Cost - Fixed Cost = Proft
53
What factors can we solve for and manage in achieving targeted profit?
Volume, price, variable cost, variable cost ratio, revenue, total fixed costs
54
Why is it important to understand the Relevant Range when working with C-V-P and Contribution margin?
If the operation being managed is expected to extend beyond the time horizon Relevant Range or extend outside of the relevant range of activity, then the C-V-P formula and analysis need to be carefully re-evaluated to adjust for changes in total fixed costs or changes in variable costs per unit. In addition, sales prices may also shift outside of the Relevant Range.
55
What is the Relevant Range?
The Relevant Range refers to a time horizon or range of activity within which fixed costs are expected to remain constant in total and variable costs are expected to remain constant per unit.
56
How can the Contribution Margin Rate and the Contribution Margin Ratio be used to the Breakeven Point?
Total Fixed Costs/ CM Rate= Breakeven Volume of Units
| Total Fixed Costs/ CM Ration= Breakeven Revenue Dollars
57
How can the Contribution Margin Rate and the Contribution Margin Ratio be used to compute profit?
(CM Rate x Volume) - Total Fixed Costs= Profit
| (CM Ration x Revenue) - Total Fixed Costs= Profit
58
How is the Contribution Margin Ratio calculated?
The CM Ratio can be computed using either total CM margin or CM margin rate per unit as follows:
Total CM / Total Sales Revenue or
CM per unit / Sales Price per Unit
59
What is the difference between Gross Margin and Contribution Margin computations?
Gross margin is computed as:
Revenue - Cost of Goods Sold
CM is computed as Revenue - Variable Costs
60
What is the "key activity" for an organization determining its C-V-P analysis?
The key activity is what primarily drives costs and revenues and can be defined as almost anything for any organization (items sold, feet drilled, billable hours, etc)
61
How is the return on assets ratio calculated (ROA)
ROA= Net income/ average total assets
62
How is the return on equity (ROE) ratio calculated?
ROE= Net Income / Avg Common SE
63
How is the DuPont model for ROA calculated?
DuPont Model for ROA= (Net Income/ Sales) x (Sales/ Average Total Assets)
Profit Margin x Total Asset Turnover
64
How is the DuPont Model for ROE calculated?
DuPont Model for ROE = (Net Income/ Average Assets) x (Average Total Assets/ Average Total Common SE)
ROA x Financial Leverage
65
How is Gross Margin calculated and what does it measure?
Gross Margin= Gross profit/ Net sales
-Measures the amount of each sales dollar available to cover operating expenses, including selling and admin expenses, other exp, and income tax exp
66
What are currency fluctuations?
Currency fluctuations are when the exchange rate of a specific currency fluctuates based on supply and demand. When a currency falls relative to another currency, it has weakened against that other currency. When a currency rises relative to another currency, it has strengtened against that other currency.
67
What is the book value of a firm?
The value is calculated as the difference between total assets and total liabilities plus any preferred stock. The BV of a firm is equal to common SE.
68
What is the risk-free rate of return? Rf
The risk-free rate of return typically refers to the current rate of return on risk-free security such as the U.S. Treasury bill
69
What is the market risk premium (Rm - Rf)
The market risk premium is the expected return of the broader stock market such as the S&P 500 or Dow Jones Industrial Average. The "premium" refers to the amount of return expected from the market above and beyond the return that could be earned from risk-free security.
70
What is the difference between perfect competition and monopolistic competition?
Perfect Competition: Very high number of competitors. Very difficult to compete profitably. Firms in this market are "price takers"
Monopolistic Competition: Moderately high number of competitors. The products and services provided are similar. Competitors work hard to create differentiation in order to be profitable.
71
What is the difference between oligopoly and monopoly?
Oligopoly: Few competitors due to high barriers to entry. Products and services are similar. More inelastic below and more elastic above the current price point
Monopoly: Single competitor with a unique product or service. Monopolies exist because of extremely high barriers to entry. The profit potential is very high but often regulated by the government.
72
What is the breakeven point in C-V-P analysis?
Breakeven is defined as the level of sales and activity volume at which revenues exactly offset total costs, both fixed and variable
73
How is the Variable Cost Ratio computed?
Variable Cost Ratio= Variable Costs/ Revenue
74
What is the C-V-P formula to solve for Sales Revenue?
Revenue - (Variable Cost Ratio x Revenue) - Total Fixed Costs = Profit
75
What is the basic C-V-P formula?
Revenue - Variable Costs - Fixed Costs = Profits
76
What is the difference between an acquistion and a merger?
An acquisition is when one firm buys a controlling interest that is greater than 50% ownership in another business.
A merger take places when firms combine into one.
77
What is a compensating balance? What is the formula to calculate the total borrowing amount for aloan with a compensating balance?
A compensating balance is a minimum balance that must be maintained in a bank account to offset the cost of a loan incurred by a bank.
Amount Needed / (1 - Compensating Balance %)
78
From what sources can a firm receive short-term credit to finance working capital requirements?
1. Trade Credit
2. Short-term bank loans
3. Commerica paper
4. Accounts receivable financing
79
What is cash management?
Cash management is the process by which a firm collects, invests, and administers its cash. Cash management policies are focused on managing a firm's liquidity needs and are built around the cash conversion cycle.
80
What ae the declaration date, ex-dividend rate, record date, and payable date in regards to dividends?
Declaration date: when the company announces that the board has approved a dividend.
Ex-dividend date: the first day the stock will trade without rights to the declared dividend.
Record date: two business days after the ex-dividend date. Shareholders at that date are determined to receive the dividend.
Payable date: when the dividend is distributed
81
What is the inital public offering (IPO)?
An initial public offering is when firm offers ownership shares in the firm to the general public for the first time
82
What do commercial banks do?
Commerical banks are banks that offer financial services such as checking accounts, savings accounts, lines of credit, and term-loans
83
What are investment banks?
Investment banks are banks whose specialty is helping companies sell new debt and equity in the primary markets.
84
What is the efficient market hypothesis? (EMH)
The efficient market hypothesis is an underlying theory about how well markets are able to reflect information in security prices.
85
What is insider trading?
Insider training is an illegal practice where individuals with confidential or non-public information trade on investments for profits.
86
What is the difference between primary, secondary, and money markets?
A primary market is a market where new security issues, either debt or equity are sold directly to investors.
A secondary market is a market in which owners of securities can sell them to other investors
A money market is a specific type of security market wherein short-term debt instruments are traded.
87
When will a bond sell at par value, a discount, or a premium?
A bond will sell at par value when the market interest rate and a bond's coupon rate are the same
A bond will sell at a discount when the coupon rate is below the market interest rate
A bond will sell at a premium when the coupon rate is higher than the market interest rate
88
What is Weighted Average Cost of Capital?
The weighted average cost of capital (WACC) is blended average of the different types of capital used to finance a firm.
WACC= (proportion of debt x Rd) x (1- tax rate) + (proportion of equity category x Re)
Where proportion od debt= Debt / (Debt + Equity)
proportion of equity = Equity / (Debit + Equity)
```
Rd= Cost of debt
Re= Cost of equity
```
89
What is the cost of capital for a firm?
The required rate of return the firm must earn in order to satisfy or meet investors expectations
90
What is captial structure?
Capital structure is the mix of debt and equity that a company uses to finance its activities.
91
Leases for financial accounting purposes come in what two forms?
1. Operating lease= lessor transfers only the right to use the property to the lessee and the lessee retains most of the risks and benefits of ownership.
2. Finance lease: transfer the risk of ownership to the lessee. The lessee pays for maintenance, insurances, and the other costs of ownership.
92
What is an option?
An option is a contract between parties where the option buyer has the right but not the obligation to buy or sell a given amount of the underlying asset. The buyer of an option pays the seller or writer of an option as a premium or a fee in order to buy the right to exercise the contractual agreement at a future date.
93
What is preferred stock?
Preferred stock is a unique financial instrument that has characteristics of both common stock and debt. It has a fixed dividend amount which companies are not required to pay in a given financial period, but the dividends are cumulative. Preferred stockholders do not have voting rights. In the event of liquidation, preferred stock holders are paid after bondholders but before common stock holders. Preferred stick often has the provisions to convert shares of preferred stock into shares of common stock.
94
What is the preemptive right of common stockholders?
If a company issues additional shares to raise capital, current stockholders are allowed to purchase new shares proportional to the shares they currently own. This allows owners to maintain the same ownership percentage
95
What is the expected rate of inflation?
The belief about whether prices will be increasing in the future and by how much
96
What is the total shareholder return?
The total shareholder return on investment in common stock is the total of all dividend payments received since the investment was made and the appreciation in stock price.
Dividend payments + Stock appreciation
97
What is the Dividend Payout Ratio?
Dividend payout ratio = Dividends / Earnings
98
What is diluted earnings per share? (Diluted EPS)
Diluted EPS= (Net Income- Preferred Dividends)/ Diluted Weighted Average Common Shares Outstanding
The dilution comes from the shares of stock that could have been exercised or converted to common stock on the closing date of financial statements. These shares come from stock options, stock warrants, and convertible bonds.
99
What is the basic earnings per share? (EPS)
Basic earning per share (EPS) is calculated for common shareholders only, even if the company has preferred stock issues and is outstanding. It represents the net income earned on each share of common stock that is outstanding.
EPS= (Net Income- preferred dividends) / Weighted Average Common Shares Outstanding
100
How is Price/Earning Ratio (P/E) calculated?
Price/Earnings Ratio (P/E)= Stock Price / Earnings Per Share (EPS)
101
How is Market-to-Book Ratio calculated?
Market/Boot Ratio= Stock price/ book value per share
Book value per share is only for common stockholder's equity and is calculated as follows:
Book Value per Share= Common Stockholder's Equity (total stockholder's equity - preferred equity) / Common Shares Outstanding
102
What is an operating cycle and how it is calculated?
The time between when goods are purchased and when cash is received from the sale of goods.
Operating Cycle= Day's Sales in Accounts Receivable + Days Sales in Inventory
103
How do you calculate Accounts Receivable Turn Over and Number of Days Sales in Receivables?
AR Turnover= Credit Sales/ Average Gross AR
Number of Days Sales in Receivables = 365 days / AR Turnover
104
What choices do organizations have when their product moves into Decline stage?
- Restarting the product life cycle with a new market or reengineered product
- Harvesting the product profits with high prices that accelerates the decline
- Slowing the decline of a product by cutting prices to extend the product life
105
When is competition typically greater during the product life cycle?
Competition is typically greater during the Maturity and Decline stages of the product life cycle
106
What are production costs typically higher dring the product life cycle?
Producr costs are typically higher during the introduction and growth stages of the product life cycle.
107
What are the four basic stages in the product life cycle?
1. Introduction
2. Growth
3. Maturity
4. Decline
108
In which stag of the product process (design, production, delivery) do organizations generally create most of a product;s value?
Organizations generally create most of their product's value in the initial design of the product.
109
What is Return on Assets?
Return on assets indicates the overall profitability of assets
```
ROA= Net income / average total assets
ROA= profit margin x total asset turnover
```
110
What is return on equity?
Return on Equity is an indication of the profitability of the investment by common stockholders
Return on Equity= (Net Income - Preferred Dividends) / Average Commoon Stockholder's Equity
ROE= ROA x Financial Leverage
111
What is the Degree of Total Leverage?
The Degree of Total LEverage measures the total level of risk faced by an organization
Degree of Total Leverage = DOL x DFL
112
What are the two different formulas used to calculate the degree of financial leverage?
1. DFL = % Change in Net INcome / % Change in EBIT
| 2. DFL = EBIT / EBT
113
What is financial leverage?
Financial leverage is the balance between debt and equity financing in a company's capital structure. Deb financing results in tax-decutible interest expense. Equity financing results in dividend payments that are not an expense reported on the income statement. A high degree of financial leverage equates to a greater degree of risk for the company.
114
What are two different formulas for degree of operating leverage (DOL)
1. DOL = % Change in EBIT / % Change in Sales
| 2. DOL= Contribution Margin / EBIT
115
What is operating leverage?
Operating leverage is the extent that a company's operating income (earning before interest and taxes) will change based on a change in sales
The higher the fixed costs realivte to the variable costs, the higher the operating leverage
A high operating leverage is good when sales increase because profits will be much higher but not so good when sales decrease because profits will be much lower
116
What is free cash flow ratio?
Free cashf flow = cash provided by operations - capital expenditures - cash dividends
This measure the amount of cash available from operations after deducting capital expenditures and cash dividends
117
What is the interest coverage (times earned interest ratio)
Interst Coverage= EBIT/ Interest
| This shows how well earnings can cover interest expense
118
How do you calculate Inventory Turnover and NUmber of Days in Sales in Inventory
Inventory Turnover= Costs of Goods / Average Inventory
Number of Days Sales in Inventory= 365 days/ Inventory Turnover
119
How do you calculate Accounts Payable Turnover and NUmber of Days in Purchases ?
AP Turnover= Credit purchases/ average ap
| Number of Days in Purchases AP= 365/ AP Turnover
120
How do you calculate Asset Turnover?
Asset Turnover= Net sales/ Average Total Assets
121
How do you calculate Fixed Asset Turnover?
Fixed Asset Turnover= Net Sales / average net property, planet and equityment
122
What is gross margin and how is it calculated?
Gross margin is an indicator of the adequacy of selling price to cover cost of goods sold
Gross margin = Gross Profit/ Net sales
123
What is operating Profit Margin and how is it calculated?
Operating Profit Margin indicates the percent of profit from the operations of the business
Operating Profit Margin= Operating income/ net sales
124
What is profit margin and how is it calculated?
Profit magin indicates the results of the company;s performance for the time period.
Profit Margin = Net income/ Net sales
125
What does EBITDA stand for? What is EBITDA Margin?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amoritization
EBITDA is an estimate of cash provided by operations
EBITDA Margin= EBITDA / Net Sales
126
What are liqudity ratios?
Liquidity ratios measure the company's ability to pay its short term obligations and meet any unexpected needs for cash with current assets
127
What is the horizontal financial statement analysis?
Horizontal analysis is a method of evaluating financial statements over a period of time. Horizontal analysis is also called trend analysis. It determines the increase or decrease from on time period to another. A base period is determined in order to perform the analysis. This can be immediate prior period or further back in time.
128
What is common-size financial statement analysis?
Common size financial statement analysis also called vertical analysis is a method of comparing financial statements from different time periods to analyze trends and review the organizations future growth prospects. It is performed by calculating financial statement amounts in each statement as a percentage of a base amount for that statement. The base amount is a set at 100%. All of the other line items on the financial statement are calculated as a percentage of the base amount.
129
What is the Current Cash Debt Coverage ratio?
Current Cash Debt Coverage Ratio= Cash Provided by Operations/ Average Current Liabilities
130
What is solvency?
Solvency is the ability of a company to survive over a long period of time. In other words, the ability of the company to pay not only current liabilities as they come due but also its long-term liabilties
131
What is the definition of fraud?
The definition of fraud is wrongful or criminal deception intended to result in financial or personal gain
132
What is the Fixed Charge Coverage Ratio?
Fixed Charge Coverage= (EBIT + FIxed Chargres) / (Fixed Charges + Interest Expense
This is a way to measure how well earning can cover fixed charges.
133
What is the debt to total assets ratio?
Debt to Total Assets= Total Liabilties/ Total Assets
This ratio can be interpreted as how much of the assets are financed and therefore owned by the credits of the company. The difference between this percent and 100% is the amount of assets owned by stockholders.
134
What is the formula for Debt to Equity?
Debt to Equity= Total liabilties / Total Stockholder's Equity
135
What is the formula for Long-term Debt to Equity?
Long-term Debt to Equity= Long-term Liabilties/ Stockholder's Equity
136
What is the Cash Ratio?
Cash Ratio= (Cash + Marketable Securities) / Current Liabilties
This ratio is a tougher measure of lquidity than the quick ratio and the current ratio.
137
What is the Quick (Acid- Test) Ratio formula?
Quick Ratio= (Cash + Marketable Securities + Accounts Receiveable) / Current Liabilties
This ratio's measure a firm's ability to meet its current obligations with its cash, marketable securities and accounts receivable
138
What is the Net Wokring Captial formula?
Net working capital = current assets - current liabilties
139
What is the current ratio formula?
Curretn Ratio= Current Assets/ Current Liabilties
140
What is lead time, safety stock and reorder point?
Lead time is the time between when a firm places an order with a supplier and when the goods arrive at the business
Saftey stock is extra inventory on hand to protect against increased demand
The reorder point is when to order more inventory and is calculated as: (Average Daily Demand in Units x Lead Time) + Safety Stock
141
What are opportunity costs?
Opportunity costs are the value of the next best opportunity given up to make the current decision essentially money that might have been paid or received. These costs, if other opportunities are present are always relevant
