B3: Financial Management Flashcards
What is Working Capital?
CA - CL
What is the Economic Order Quantity (EOQ) formula?
E = (2SO)/C You can remember 2SOC - 2(Annual Sales*Order Cost/Carrying Cost Per Unit
CAPM formula?
risk free rate + beta * (expected market yield - risk free rate) RF+B(RM-RF)
What is the ROI formula?
income/ave investment; income = revenue - expense and investment = PPE and working capital
Investment turnover =
Cogs / ave investment
Quick ratio =
Current assets - inventories / current liabilities
Inventory turnover =
Cogs / average inventory
Cost of equity capital =
(dividend / market price of share) + % expected growth In div
Why does profit margin = roi / asset turnover?
You must convert return percentage per order to annual percentage (so you divide by turnover)
APR of not using 2/10 net 30 for a 360 day year?
(360/20) * (.02/.98)
What is economic value added?
Residual income - cost of capital
What is operating leverage?
The degree to which a firm uses fixed operating costs opposed to variable (high fixed cost = high leverage) - (change in EBIT) / (change in variable cost)
What is the risk free rate + inflation rate
Rate on a US treasury bill
Current ratio =
(Current assets - inventory - prepaid expenses) / current liabilities
What is the diff between the quick ratio or Acid test and the current ratio?
Current ratio is only extremely current assets. So it’s current assets - inven - prepaid expenses over the current liabilities
What is materials requirements planning (mrp)
One of the first software based integrated information systems designed to improve productivity for businesses. A materials requirement planning (MRP) information system is a sales forecast-based system used to schedule raw material deliveries and quantities, given assumptions of machine and labor units required to fulfill a sales forecast.
What is the discount rate?
Rate of return that could be earned on an investment in the financial markets with similar risk
T of F, you take the present value using the payback method
F
What is the internal rate of return?
present value of the after-tax cash flows equals the initial investment on the project
Define “working capital management”
managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other.
How do you find the APR of credit terms such at 3/10 net 45?
=
360
(Total pay period − Discount period)
×
Discount %
(100% − Discount %)
=
[360 / (45 − 10)] × [3% / (100% − 3%)]
In the “acid test” ratio, the numerator is current assets less…
prepaid expenses and inventory
What is the “profitibility index”?
(PV of net future cash inflows) / (PV of net initial investment) = Profitiblity Index
How is the “beta” calculated?
% Change in Stock Price / % Change in Market Price
Define “earnings”?
after tax net income, or profit
What is “operating leverage”?
presence of fixed costs in operations (small change in sales will make a large difference in profit)
Do you take imputed interest out of ROI or RI?
RI only, RI is income whereas ROI is return
