Ch4-6 Flashcards
Asset Usage Efficiency Lever
One of the three parts of the DuPont = S/TA.
Cash Budget
A forecasting tool typically used for the short term (a year or so)
DFN
Discretionary financing (or funds) needed. How much cash the firm needs in a pro forma statement.
Discretionary Accounts
Another name for non-spontaneous accounts.
Dividend Payout Ratio
Dividends/Net Income.
Dividend Policy
The amount of dividends management decides to pay out to shareholders.
EFN
External financing (or funds) needed. Another name for DFN.
Excess Capacity
When fixed assets do not need to increase as sales increase.
Full Capacity
When fixed assets have to increase if the firm wants to increase sales.
Leverage Lever
DuPont = TA/TE, also known as the equity multiplier.
Non-Spontaneous Accounts
Financial accounts that do not vary directly with sales.
Percent of Sales Forecast
A way to make pro forma financial statements based on a sales prediction and how accounts vary with sales.
Plowback Ratio
Another name for the retention ratio.
Pro Forma Statements
Future or forecasted financial statements.
Profitability Lever
DuPont = NI/S.
Retention Ratio
1 - dividend payout ratio.
SGR
ROE * (1-Div/NI).
Spontaneous Accounts
vary directly with sales.
Annuity
A series of payments or receipts.
Annuity Due
pays at the beginning of each period.
Compounding
Future value of present money
Compounding Problem
When the periods, payments, and interest must be adjusted for non-annual time value of money problems.
Deferred Annuity
An annuity that starts sometime in the future.
Discount Rate
The rate at which money is discounted or compounded.
Discounting
Present value of future money.
Effective Yield
(1+stated rate/m)^m -1.
Future Value
Future spending power of money
FV
Future Value, a lump sum.
FVIF
Future value investment factor = PV * (1+r)^n.
FVIFA
Future value investment factor of an annuity.
I/Yr
Interest rate per period.
Lump Sum
A single amount of money.
N
Number of periods.
Ordinary Annuity
pays at the end of each period.
Perpetuity
An annuity that lasts forever.
PMT
Payment, the annuity payment.
Present Value
Spending power of money today.
PV
Present Value, a lump sum.
PVIF
Present value investment factor = FV/(1+r)^n.
PVIFA
Present value investment factor of an annuity.
Required Rate of Return
Another name for the discount rate.
Time Value of Money
The process of valuing money at specific points in time.
Uneven Cash Flows
A series of cash flows that are not equal.
Affirmative Covenant
A bond covenant that requires the firm to do something.
Bond
A fixed income financing instrument.
Bond Indenture
The legal document detailing a bond.
Bond Ratings
A rating assigned to a firm to measure the probability of default by a company like S&P or Moody’s.
Convertible Bonds
Bonds that can be converted into equity at the owner’s request.
Convexity
The curvature of the price-yield relationship not captures by duration.
Coupon Rate
Another name for coupon yield.
Coupon Yield
The rate the bond issuer promises to pay its investors.
Covenants
Rules set forth in the bond indenture to protect bond investors.
Current Yield
Annual Coupon/Current Market Value
Debenture
A bond that is not secured by collateral or guarantees.
Debt Capital
Firm financings that appears in the debt section of the balance sheet.
Duration
A measure of the interest rate sensitivity of a bond.
Eurobonds
Bonds issued in a country not in that country’s currency.
Face Value
The lump sum amount paid on a bond’s maturity date.
Fixed-Income Securities
pay an equal payment on fixed periods
Foreign Bonds
Bonds issued in a domestic market by a foreign firm, but in the domestic currency.
Inverse Price-Yield Relationship
When market yields go up, bond prices go down and vice versa.
Investment Grade
Bonds rated BBB or above.
Junk Bonds
Speculative bonds rated BB or below.
Macaulay Duration
A specific type of Duration, a measure of interest rate sensitivity.
Maturity Date
The date the bond issuer pays the face value and the bond expires.
Modified Duration
An adjusted version of Macaulay Duration which makes it a little more accurate.
Mortgage Bonds
secured by real property.
Muni
Short for municipal bond.
Municipal Bond
A bond issued by a local municipality
Negative Covenant
prohibits the firm from doing something.
Par Value
Another name for face value.
Promised Yield
Another name for yield to maturity.
Security Valuation
The process of valuing assets.
Subordinated Debenture
A lower-ranked bond that is not secured by collateral or guarantees.
Trade at Discount
When a bond’s market price is less than its face value.
Trade at Premium
When a bond’s market price is greater than its face value.
Treasury Bill
A short-term bond issued by the US federal government.
Treasury Bond
A bond issued by the US federal government
YTM
Yield to maturity, the required rate of return of a bond.
Zero Coupon Bond
Another name for zeros.
Zeros
Bonds that do not pay interest payments.
