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BEC > Becker - Chapter 3 > Flashcards

Becker - Chapter 3 Flashcards

0
Q

Capital Asset Pricing Model (CAPM)

A

Risk-free rate + (beta x risk prem)

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1
Q

Economic value added formula

A

EVA is computed as after-tax income in excess of required return

Net Income - Required Return = EVA

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2
Q

Inventory Turnover ratio formula

A

Activity

COGS/Avg. Inventory

In days: Inv. turnover / 365

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3
Q

Accounts receivable ratio formula

A

Activity

Net Credit Sales / Avg. AR

In days: AR turnover / 365

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4
Q

Accounts Payables ratio formula

A

Operating cycle

Purchases / Avg. AP

In days: AP turnover / 365

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5
Q

Operating cycle calculation

A

of days of inv. + # of days of rec.

Net Oper. Cycle: Above - # of days of purchases

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6
Q

Current ratio formula

A

Liquidity

Current Assets / Current Liabilities

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7
Q

Quick (Acid test) ratio formula

A

Liquidity

Current Assets - Inv. / Current Liab.

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8
Q

Net working capital to sales ratio formula

A

Liquidity

Current Assets - Current Liab. / Sales

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9
Q

Gross Profit margin ratio formula

A

Profitability

Gross income / Sales

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10
Q

Net income margin ratio formula

A

Profitability

Net Income / Sales

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11
Q

Inventory Turnover ratio formula

A

Activity

COGS / Avg. Inv.

In days: Inv. turnover / 365

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12
Q

Formula to calculate Purchases

A

COGS + End. Inv. + Beg. inv.

Open to update

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13
Q

Total debt to asset ratio formula

A

Financial

Total debt / Total assets

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14
Q

Total debt to equity ratio formula

A

Financial

Total debt / Total shareholders’ equity

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15
Q

Earnings per share ratio formula

A

Net Income / Avg. O/S common shares

16
Q

Dividends per share ratio formula

A

Dividends paid to shareholders / number of shares O/S

17
Q

Dividend payout ratio formula

A

Dividends / Earnings

18
Q

Price-earnings ratio formula

A

Market price per share / Earnings per share

19
Q

Return on Assets ratio formula

A

Net Income / Total Assets

20
Q

Return on Equity ratio formula

A

Net Income / Shareholders’ equity

21
Q

Asset Turnover ratio formula

A

Sales / Total Assets

22
Q

Calculating the cost of lost discounts

A

Annual days / discount period x discount% / 100% - discount%

23
Q

Economic value-added breakdown

A

EVA is a residual income technique used for capital budgeting and performance evaluation. It represents the residual (excess) income of project earnings in excess of the cost of capital (includ. cost of equity) associated with invested capital.

24
Q

Operating Leverage breakdown

A

OL is defined as the degree to which a firm uses fixed operating costs, as opposed to variable operating costs. A firm that has high OL has high fixed operating costs (salaries) and relatively low variable operating costs (commission) and uses this cost structure to magnify the financial results of each additional dollar in sales.

25
Q

Financial leverage breakdown

A

FL is defined as the degree to which a firm uses debt to finance the firm, not purely operating fixed costs. When making financing decisions, a firm can choose to issue debt or equity. When debt is issued, the firm generally must pay fixed interest costs.

26
Q

Cost of equity formula

A

Expected dividend / current share price + growth rate

27
Q

A graph that plots beta would show the relationship between …

A

Asset return and benchmark return.

Beta shows the relationship between the return of an individual asset and the return of an entire class of that asset, as reflected in a benchmark return for that class.

28
Q

Cash conversion cycle

A

The cash conversion cycle is equal to the inventory conversion period plus the receivables collection period less the payables deferral period.

Think of it as how long it takes for a company to buy inventory on credit from a vendor, sell that inventory on credit, collect cash for the sale, and use the proceeds to pay the vendor for the purchase.

29
Q

Payment discount calculation

APR of quick payment discount

A

Number of days in a year/pay period - discount period x discount %/100 - discount %

30
Q

Relevant costs

A
  • Incremental costs
  • Opportunity costs
  • Controllable costs
  • Marginal costs (variable costs and avoidable fixed costs)
31
Q

Country risk includes

A
  • political risk
  • economic risk
  • transfer risk
  • sovereign risk
  • exchange rate risk

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