3 BEC Flashcards
Operating Cycle
Days Sales in Inventory
+ Days Sales in Receivables
The operating cycle is the time needed to turn cash into inventory, turn inventory into receivables and turn receivables back into cash
Economic Order Quantity
Square Root of
2 X Periodic Demand X Cost/Order
Divided by
Carrying cost per Unit
Most desirable when cost per order is going down and carrying costs are going up
Average Days Sales in Inventory
365/Inventory Turnover
Inventory Turnover = COGS/Avg Inventory
Sales Volume VARIANCE CIS COMPUTED ON THE SALES PRICE OR THE CONTRIBUTION MARGIN?
CONTRIBUTION MARGIN
What key words in NPV indicate which factors u should use.
Savings Per Year =
Paid “in year” 1 and 2
Savings - annuity factors
Paid in Year = PV factors
Optimal Capital Structure
Why isn’t the cost of debt the main factor versus the WACC?
Because if you just issue more stock, people get pissed, investors will go elsewhere, there is a cost to equity.
When computing the cost of debt on a company’s bonds do you use the face rate or the effective rate?
When computing the cost of preferred stock do you use the market rate or the par value?
Effective RAte
Market Price
What Does the optimal capitalization for an organization do and what is it measured by?k
Maximizes value of stock
Lowest WACC
If it asks you for an intersection of something on a graph
It usually is the equilibrium
Except if it’s a regression curve and the y intercept is the amount of fixed costs, actually what is y on the regression
total costs - fixed costs (a) + b (X)
B is the slope of the line or the variable costs per unit
Y is the total costs and X is the number of units, so it makes sense that when the units are 0 the y axis is the fixed cost
Degree of Financial Leverage
Not memorizing the formula
% change in earnings to common stockholders associated with a given change in operating income, has nothing to do with capital “structure”
Maximum Degree of total Leverage
Nothing to do with capital STruture
Degree of FL X Degree of Operating Leverage
What’s short term debt and long term debt used for
Short term working capital
Long term investments
WACC
What balance sheet components does it worry about
Do you use the FMV or the book value
A/P - nope short term liability for working capital and WACC is concerned with LT
LT Debt
Common Stock
Retained Earnings
Preferred Stock
Didn’t answer my own question on the FMV
Plus I don’t get how RE fits in here
Nominal versus real
Nominal is the gross
Real is the net after inflation is taken out
Overall Cost of Capital is a synonym for what
WACC - LT Debt, Preferred, Common
