BEC Flashcards
COSO Framework Objectives (ORC)
Operations: Effectiveness and efficiency of operations
>Ensuring that the assets of the org are adequately safeguarded
Reporting: Reliability, timeliness, and transparency
Compliance: Ensure the entity is adhering to all applicable laws and regulations
Components of IC (CRIME)
Control Environment (EBOCA) Risk Assessment (SAFR) Info and comm (OIE) Monitoring Act (SOD) Existing Control Activities (CAT P)
Control Environment (EBOCA)
E - commitment to Ethics and integrity B - Board independence and oversight O - Organizational structure C - Commitment to competence A - Accountability
Risk Assessment (SAFR)
S - Specify objectives >Financial reporting objectives fall here A - identify and Assess changes F - consider potential for Fraud R - identify and analyze Risks
Information and Communication (OIE)
O - Obtain and use information
> Fair, accurate, complete, timely (FACT)
I - Internally communicate information
E - communicate with External parties
Monitoring Activities (SOD)
S/O - Ongoing and or Separate evaluations (frequency of tests)
D - communication of Deficiences
Existing Control Activities (CAT P)
C/A - select and develop Control Activities (mitigate risks)
T - select and develop Technology controls
P - deployment of Policies and Procedures
Enterprise Risk Management (CCPIS)
The Culture, Capabilities, and Practices Integrated w/ Strategy - setting and performance, that orgs rely on to manage risk in creating, preserving, and realizing value
ERM Value (CPER)
Value Creation (Benefit > Cost)
Value Preservation (Sustainable operating profit)
Erosion (Faulty strategy)
Realization (Div/SP > Cost to SH)
Components of ERM (GO PRO)
Governance and Culture (DOVES) Objective setting and strategy (SOAR) Performance (VAPIR) Review and Revision (SIR) Ongoing information, communication, and reporting (TIP)
Governance and Culture (DOVES)
D - Define desired culture
O - exercise board Oversight
V - demonstrate commitment to core Values (code of conduct)
E - attracts, develops, and retains capable Employees
S - establishes operating Structure
Strategy and Objective Setting (SOAR)
S - evaluate alternative Strategies
O - formulates business Objectives (realistic given risk)
A - Analyze business context (external and internal)
R - define Risk appetite (suitable floor/ceiling)
Performance (VAPIR)
V - develop portfolio View A - Asses severity of risk P - Prioritize risks I - Identify risks R - implement Risk Responses (ARTS)
Risk Responses (ARTS)
Avoidance
Reduce (hedge/derivative)
Transfer/share (insurance)
Self-insure/acceptance
Review and Revision (SIR)
S - assess Substantial change (change in officers, substitute product)
I - pursue Improvement in ERM
R - Review risk and performance (was hedge effective?)
Ongoing Information, Communication, and Reporting (TIP)
T - Leverages information and technology (FACT)
>Use relevant info to form CA
>Data mgt in risk awareness (SEE IT)
I - Communicate risk information (MD&A)
P - Reports on risk, culture, and performance (MD&A)
>Portfolio view and level/subview
Effective Interest Rate
(Principal x SAR)/ #periods = [Interest paid/period]/ net proceeds of loan
Annual Percentage Rate
Effective (periodic) rate x # periods in year
Effective Annual Percentage Rate
=(1 + effective periodic rate) - 1 = EAR
=(1+(Stated rate/2))^2
Compound interest
= P0 * (1+i)^n
Required Rate of Return
S1: Nominal Rf = Real Rf + E inflation
S2: Nominal Rf + RPs = RR
WACC
(E/V)Re+(P/V)Rp+(D/V)*(Rd(1-T))
Cost of Debt
S1: Effective annual interest payments/debt outstanding(net)
S2: Pretax cost of debt * (1-tax rate)
Cost of PS
(Par*Rate)/ Net proceeds of PS
CAPM (Equity Val)
Rf+B(Rm-Rf)
Discounted CF Model (Equity Val)
= ((D0*1+g)/P0)+g
Bond Yield Plus Risk Premium (BYRP) (Equity Val)
Pretax cost of LT debt + Market risk premium
Growth Rate
ROE * Retention rate or [ROE * retention rate]/[1-(ROE*retention)] ROA * DFL = ROE Retention rate = 1-payout Payout = DPS/EPS
Return on Investment
=NI/average Invested Capital
=Profit margin*investment turnover
Operating Leverage
=% change in EBIT/% change in sales
=FC/VC
=CM/EBIT
>Operating leverage is the presence of fixed costs in operations, which allows a small change in sales to produce a larger relative change in profits.
Financial Leverage
% change in earnings (EBT)/% change in sales
Working Capital Turnover
=Sales/ Avg WC
Reorder Point
Safety Stock+(lead time * sales during lead time)
>Keep time consistent
Economic Order Quantity
=sqrt[2SO/C}
S= Annual Sales (in units)
O= Cost/ purchase order
C - Annual carrying cost/unit
Supply Chain Operations Reference (SCOR) Model
- Plan - properly balance demand and supply
- Source - select vendors
- Make
- Deliver
>Must meet all four if you want to SCOR
>costs down, profits up, efficency up
APR of Quick Payment discount
=[360/(pay period - disc period)] * [disc/(100-disc %)]
Price-Earnings Ratio
current stock price/expected earnings per share
>trailing P/E = EPS0
>Forward P/E = EPS1
PEG
price earnings ratio/growth rate
Price to Sales Ratio
current stock price/expected sales per share
Price to Cash Flow
current stock price/expected cash flow per share
Price to Book value
current stock price/book value per share
Constant (Gordan) Growth Dividend Model
Current Price = [Dt * (1+g)] / (r-g)
r= CAPM
Perpetuity
Dividend/required return
Annuity
=C * (1-PVF)/r
PVF = 1/(1+r)^t
Economic Return
= [change in price + div inc] / beg. price
Valuing Tangible Assets (CALM)
Cost method = NBV Appraisal value (objective) Liquidation method = value if sold today Market value method = replacement cost or NRV
Valuing Intangible Assets (MIC)
Market approach = actual arms length transaction
Income Approach = DCF
Cost approach = replacement and reproduction cost
Valuation of Options
Black-Scholes Model To increase value of option: -higher current price -higher Rf -higher current time to expiration -higher measure of risk -lower exercise/strike price
NPV Cash Flows
- Inception = initial outflow plus additional necessary costs minus proceeds from trade-in (net of tax)
- Operations = Cash inflows + depr. tax shield
- Disposal of project = one time terminal year inflow
Total Value of equity using DDM
=[current dividends * (1+g)]/(cost of equity- g)
Objectives of Cost Accounting (PIE)
Produce costing (inv and cost of goods mfg and sold) Income determination (profitability) Efficiency measurements(comparisons to stds)
Prime Costs
DM+DL
Conversion Costs
DL+OH applied
Overhead Rate
Budgeted OH/Estimated cost driver
COGS Manufactured and Sold
S1: Beg. RM + purchases = AFU S2: COGM Beg. WIP \+DM \+DL \+MOH =Total Manu costs avaliable -WIP ending =COGM S3: COGS Beg. FG \+COGM =COGAFS -End FG =COGS
Equivalent Units - FIFO
S1: BI * (1 - % complete)
S2: Add units started and completed (completed - beg.)
S3: EI * % complete
Cost = current costs only
Equivalent Units - WA
S1: Beg. WIP + units completed
S2: Add EI * % complete
Cost = Beg and current
By-Products
Income can either be used to reduce common costs for joint products or become Misc. income
Joint product costing
- Allocation by unit volume relationships
- Sales price quotations @ split off (relative SP)
- Sales values not available at split-off
>Final selling price - identifiable costs incurred after split (separate costs only)
Types of Responsibility Segments (CRPI)
Cost sbu - Responsible for controlling costs
Revenue sbu - generating revenues
Profit sbu - revenues and costs
Investment sbu - ROA responsibility
Controllable Margin
= contribution margin - controllable fixed costs
Dupont ROE
=PM * Asset TO * financial leverage
= NI/Sales * sales/assets * assets/equity
Extended Dupont ROE
= tax burden * interest burden *ebit margin * asset TO * FL
=NI/EBT * EBT/EBIT * EBIT/Sales * Sales/assets * Assets/Equity
Economic value added
=NOPAT- (inv *WACC)
Categories of the Balanced Scorecard (FICA)
Financial (profit and loss)
Internal business processes (efficient and effective production)
Customer satisfaction
Advancement of innovation and HR development (Learning and growth)
Coefficient of Determination
= correlation coefficient squared
>R^2
>Goodness of fit
>R^2 explains percentage of variation in Y explained by change in X
Breakeven analysis
in units = Total fixed costs/ CM per unit
in dollars = Unit price * bp in units OR total fixed costs/ CM per unit
Required Sales Volume for Target Profit
in unit = (FC + pretax profit)/ cm per unit
pretax profit = after tax/ (1- tax rate)
Sales price per unit = (FC + VC+ pretax profit)/units sold
Change Control
Change control considers the manner in which management monitors and authorizes changes to a variety of information technology matters including software applications programs. Only authorized individuals should be allowed to move changes into production and the function of making the change should be segregated from the function of putting the change into production
Effective Annualized Percentage Cost
=((FV-discount)+transaction costs)/discount
Operating Cash flow ratio
Cash flow/CL
Relevant Costs
Direct, prime, discretionary, incremental, opportunity, avoidable
NOT relevant = sunk, uncontrollable, unavoidable
Operating Budgets
- Sales
- Production
- DM
- DL
- Factory OH
- COG Manufactured and Sold
- S&A
Other Budgets
Financial Budgets
>Cash budget, Proforma F/S
Capital Budgets
>Capital additions of the org
Cash Budget
Cash available
Cash disbursements
Financing for min balance
Working Capital Management
Appropriate working capital management matches the maturity life of each asset with the length of the financial instrument used to finance that asset.
Option Pricing Model Differences
There are two primary differences with the Black-Scholes model including the consideration of the option over a period of time using American-style options and it can be used for stocks that pay periodic dividends without modifying the model (which would be necessary using the Black-Scholes model).
Flexible Budgeting Variances
Total Variance = Actual vs. budgeted operating income
Volume variance = budgeted vs flexible OI
Flexible Budget variance = actual vs flexible OI
DM Variance Analysis
Price = Actual qty purchased * (actual price-std price) Quantity= std price * (Actual quantity used-std quantity allowed)
DL Variances
Rate = Actual hours * (actual rate-std rate)
Efficiency (usage) = std rate * (actual hours worked - std hours allowed)
Variable Manufacturing OH Variances
VOH= Actual hours * (actual rate-std rate)
VOH Efficiency = Std rate * (Actual hours-std hours allowed)
Fixed Manufacturing OH Variances
FOH Budget = actual fixed OH - Budgeted FOH
FOH Volume = Budgeted FOH - STD FOH cost applied
>FOH applied = actual production * std rate
>Std rate = Budgeted OH/Est cost driver
Sales Variance
Price = (Actual SP/unit - budgeted sp/unit) * actual units sold Volume = (Actual sp/unit - budgeted units sold) * std cm/unit
Business Cycles
- Every Peak contracts through recovery
1. Expansionary phase
2. Peak
3. Contractionary phase
4. Trough
5. Recovery
Factors Leading to a Shift in Aggregate Demand (TWICE G)
Taxes Wealth Interest rates Consumer confidence Exchange rates (appreciated currencies = AD down) Govt Spending
Factors Leading to a Shift in Aggregate Supply
Change in input prices
Resource availability
Multiplier Effect
-An increase in consumer, company, or govt spending produces a multiplied increase in the level of economic activity
=1/ (1-MPC) or 1/MPS
Methods for Measuring GDP
Expenditure Approach (GICE) Income Approach (I PIRATED) >Both should be equal
