sports agent Flashcards
(22 cards)
what is operating leverage?
the degree to which a company uses fixed costs vs variable costs
% change in EBIT / % change in unit sales volume
what is financial leverage?
the degree to which a company uses debt vs equity to finance. debt is riskier and interest expense is a fixed cost. equity is less risky and dividends are a variable cost.
% change in EPS / % change in EBIT
what is combined leverage?
the use of fixed operating costs and fixed financing costs to magnify returns to owners
OL * FL
what is the numerator for
turnover ratios
return ratios
sales
net income
what are the 3 components to Dupont’s ROE?
net profit margin
asset turnover
financial leverage
calculate net profit margin
net income / sales
calculate asset turnover
sales / average assets
what does an extended Dupont ROE consist of?
dives into net profit margin
tax burden, interest burden and operating income margin
profitability index
NPV / today’s outflow
a corp obtain a $200,000 loan with an interest rate of 12%. the bank requires a compensating balance of 20%. what is the effective interest rate?
15%
200,000 * 12% = 24,000
200,000 * 80% = 160,000
24/160 = 15%
a corp has AR terms of 2/10, n/30. 30% of customers take the discount, while the other 70% do not. what is the AR collection period?
24 days
10 days * 30% = 3
30 days * 70% = 21
what is risk
- acceptance
- avoidance
- reduction
- sharing
self insuring
disposal
diversifying
co-insuring, joint venture
an investor is considering to buy preferred shares from a company with a dividend of $4/share. if a zero growth model is used and the desired rate of return is 10%, how much should the stock sell for?
$4 / 10% = $40
what is a futures contract?
a standard hedging contract that is easily traded (liquid) with low risk
when supply and demand both increase, what happens to the equilibrium
- price
- quantity
price: increase, decrease or remain the same
quantity: increase
opportunity costs become variable costs when:
production is at full capacity
what is actually being purchased when acquiring application software?
the license to use
a company uses a static budget. they reported that actual sales were less than budgeted. what is the variance on sales commission and building rent?
sales commission is a favorable variance because it’s an expense that’s less than budgeted. not necessarily good.
building rent is not impacted because it’s a fixed cost that is not impacted by sales volume.
what is the cost of debt?
debt issued 200 points over US Treasury Bonds
risk free rate: 5%
tax rate: 40%
4.2%
(2%+5%) * (1-40%)
tax burden
net income / income before tax
interest burden
income before tax / operating income
operating profit margin
operating income / sales
