Final Exam Flashcards
(20 cards)
Net working capital (need)
needed to pay the bills
Net working capital (formula)
Current Assets – Current Liabilities
Current Liabilities paid within
one year
Current assets will be
Converted to cash within a year
Net working assets + fixed assets =
Long-term debt + Equity
Net working capital (alt formula) =
Cash + Other Current Assets – Current Liabilities
Days on hand aka
Inventory period
Operating cycle
Start at purchase of inventory, end when cash collected from customer
Days in inventory
Start at purchase of inventory and sale of that inventory
Days sales outstanding
Start at sale of inventory and end at collection of cash
Days payments outstanding
Start at purchase of inventory, end at payment to supplier
Cash conversion cycle
Start at payment to supplier and end at cash collection from customer
Inflate everything but
Depreciation
Want profitability index greater than
one
Why buy back shares?
Firm feels stock undervalued
Profitability index =
PV of cash inflows / Cash of outflows
NPV
Excess value above the return for shareholders
Dividend Payout Pros
- When dividend announced, see an increase in share price
- Means earnings are sustainable
- Repurchase of shares positive, firm believes share undervalued
Dividend / Share Cons
• Issue of shares means overvalued
Double taxation (corporate + capital gains)
Bad PR on low or no dividend
Could be better spent on investments
Income statement
- Revenue
- Operating Cost
- Operating Profits
- Depreciation
- EBIT
- Taxes
- Net Income
- Put back in depreciation
- Then change in WC
- Then capital spend
