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BEC - 2012 > Module 44 > Flashcards

Module 44 Flashcards

(40 cards)

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1
Q

CASH CONVERSION CYCLE

A
  • Length of time btwn when a co. receives and disburses cash

Formula:

Inventory Conversion Period
+
Receivables Conversion Period
-
Payables Deferral Period

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2
Q

INVENTORY CONVERSION PERIOD

A
  • The average time required to convert materials into finished goods

Avg. Inventory
COGS per Day or Sales per Day

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3
Q

RECEIVABLES CONVERSION PERIOD

A
  • The average time required to collect accounts receivable

Avg. Accounts Receivable
Credit Sales per Day

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4
Q

PAYABLES DEFERRAL PERIOD

A
  • The average length of time between the purchase of materials and labor and the payment of cash for them

Avg. Accounts Payable
Purchases per Day or COGS per Day

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5
Q

ECONOMIC ORDER QUANTITY

A
  • Take the SQUARE ROOT of:

2 a D
k

Where:
a = ordering costs
D = annual demand
k = carrying costs for 1 unit for 1 yr

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6
Q

REORDER POINT

A

(# of Units Sold per Day * Purchase Lead Time in days)
+
Safety Stock

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7
Q

NOMINAL RATE FOR DISC. PERIOD

A
  • Basically the cost of not taking the discount (e.g 2/10, net 30)

Discount %
1 – Discount %
*
360 or 365 days
Payment Period – Discount Period

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8
Q

DEGREE OF OPERATING LEVERAGE

A
  • Measures the degree to which co. build fixed costs into their operations. Higher fixed costs higher biz risks, but increase in volume increases profit

% Change in Oper. Income
% Change in Unit Volume

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9
Q

DEGREE OF FINANCIAL LEVERAGE

A
  • Measures the degree to which the firm uses debt financing. Use of debt can produce high returns for stockholders it can increase their risk (cost of debt cheaper)

% Change in EPS (basic)
% Change in EBIT

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10
Q

COST OF DEBT (AFTER TAX)

A

Interest Rate * (1 - Tax Rate)

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11
Q

COST OF DEBT (BEFORE TAX)

A

Interest Payment
Debt Price – Floatation Cost

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12
Q

COST OF PREFERRED EQUITY

A

Preferred Dividend
Preferred Stock Issue Price

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13
Q

CAPITAL ASSET PRICING MODEL (CAPM)

A
  • A method of estimating the cost of common equity

Ks = kRF + (km – kRF)bi

Where:
Ks = cost of existing common equity
kRF = risk-free rate
km = expected market return
bi = stocks beta coefficient

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14
Q

BOND-YIELD-PLUS APPROACH

A
  • A method of estimating the cost of common equity

Ks = LT Debt Int. Rate + (3%-5% Risk Premium)

Where:
Ks = cost of existing common equity

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15
Q

DIVIDEND-YIELD-PLUS GROWTH-APPROACH

A
  • A method of estimating the cost of common equity

Ks = (D1 / Po ) + Expected G

Where:
Ks = cost of existing common equity
D1 = net expected dividend
Po = current stock price
G = growth rate in earnings

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16
Q

COST OF NEW COMMON STOCK

A

Ks = (D1 / Po - F ) + Expected G

Where:
Ks = cost of existing common equity
D1 = net expected dividend
Po = current stock price
G = growth rate in earnings
F = floatation cost per share

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17
Q

CASH BALANCE NEEDS

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A
  • Cash Discounts - take advantage of cash discounts from suppliers
  • Speculative Blances - have cash in case you want to buy a business
  • Precaustionary Blances - have cash in case of cyclical downturns in the economy
18
Q

FLOAT

Study These Flashcards
A
  • Float is the time that elapses relating to mailing, processing, and clearing checks
  • Effective cash management involves extending the float for disbursements and shortening the float for cash receipts
19
Q

ZERO BALANCE ACCOUNT

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A
  • Cash mgmt technique involves maintaining a regional bank account to which just enough funds are transfered daily to pay the checks presented.
  • Checks take longer to clear so there is more float
  • Not extra cash needed to be deposited for contengencies
20
Q

LOCKBOX SYSTEM

Study These Flashcards
A
  • In a lockbox system computer payments are sent to a post office box that is maintained by a bank. Bank personnel retrieve and deposit payments
  • Greatly increases IC
  • More timley deposits, reduces needs for cash contigencies
21
Q

CONCENTRATION BANKING

Study These Flashcards
A
  • Customers in an area make deposits to a regional bank. Regional bank transfers payments to main bank. This reduces float, but could have high transfer relatd costs.
22
Q

CONCENTRATION BANKING

Study These Flashcards
A
  • Customers in an area make deposits to a regional bank. Regional bank transfers payments to main bank. This reduces float, but could have high transfer relatd costs.
23
Q

SUPPLY CHAIN MANAGEMENT

Study These Flashcards
A
  • A key aspect of supply chain management is the sharing of key informationfrom the point of sale to the final consumerback to the manufacturer, to the manufacturers suppliers, and to the suppliers suppliers.
24
Q

SAFETY STOCK COSTS

Study These Flashcards
A
  1. Storage
  2. Interest
  3. Spoilage
  4. Insurance
  5. Property Taxes
25
**STOCKOUT COSTS**
1. Profit on Loss Sales 2. Customer ill Will 3. Idle Equipement 4. Work stopages
26
**INVENTORY MANAGEMENT AND MRP**
- Materials Requirements Planning (MRP) is a computerized system that manufactures finished goods based on demand forecasts - Since a "push through" system, inventories may build up
27
**JUST IN TIME PURCHASING**
- JIT is a demand pull inventory system which may be applied to purchasing so that raw material arrives just as needed for production - Reduces inventories neary to zero - Relationship with suppliers is essential to proper functioning
28
**JUST IN TIME PRODUCTION**
- JIT production is a demand pull system in which each component of a finished good is produced when needed by the next production stage
29
**JUST IN TIME ADVANTAGES**
* Lower inventory carry costs * Lower inventory investment costs * Reduce risk of obsolete inventory * Reduce manufacturing costs * Reduced number of suppliers to quality ones * Simplied costing system (backflush), no need to owrry about LIFO/FIFO
30
**RECEIVABLES MANAGEMENT**
- Effective receivables management involves systems for deciding whether or not to grant credit and for monitoring the receivable
31
**DEBT FINANCING ADVANTAGES**
1. Interest is tax deductible 2. The obligation is usually fixed in terms of interest/principal 3. In periods of inflation, debt is paid back with dollars that are worth less than ones borrowed 4. Firm control not given up 5. Debtors do not participate in excess earnings of the firm 6. Debt is less costly than equity
32
**DEBT FINANCING DISADVANTAGES**
1. Interest and principal payments must be paid regardless of the economic position of the firm 2. Interest is fixed regardless how poor the comapny is performing 3. Debt covenants reduce flexibility 4. Excess debt increses risk and reduces equity prices
33
**COMMON STOCK ADVANTAGES**
1. No firm obligation, increases flexibility 2. Reduces risk of borrowing and costs 3. Attractive to investors, future profit potential
34
**COMMON STOCK DISADVANTAGES**
1. Issuance costs greater than debt 2. Ownership given up 3. Dividends are tax-deductible 4. S/H demand higher rate of return 5. Too much issuance may increase cost of capital
35
**PREFERRED STOCK ADVANTAGES**
1. No obliagation to pay dividends until declared 2. Increased equity reduces risk and cost of borrowing 3. Common s/h do not give up control of firm 4. Do not participate in superior earnings of the firm
36
**PREFERRED STOCK DISADVANTAGES**
1. Issuance costs greater than debt 2. Dividends are not tax-deductible 3. Dividends in arrears could become a burden
37
**GOING PUBLIC ADVANTAGES**
1. IPO provides larger equity pool 2. Stock may be used to aquire other biz 3. Offer stock options, attrack better talent 4. Provides owners liquidity, and futher diversification
38
**GOING PUBLIC DISADVANTAGES**
1. Significant costs and mgmt effort must be put into going public 2. Costs to comply w/ the SEC 3. Focus on maximizing stock price could hurt L/T development 4. Must provide a great deal of info to investors
39
**MERGERS**
1. Horizontal - combine in same type biz 2. Vertical - combine within supply chain 3. Congeneric - combine kinda related co. 4. Conglomerate - combine totally unrelated companies
40
**FAIR VALUE**
1. Level 1 - Market - (NYSE) 2. Level 2 - Cost - (Kelly BB) 3. Level 3 - Income - (Disc. C/F's)

BEC - 2012 (8 decks)

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