chap 4 - financial statement and long term financial planning

Question 1

planning horizon

Answer 1

the long-range time period on which the financial planning process focuses

Question 2

aggregation

Answer 2

the process by which smaller investment proposals of each of a firm’s operational units are added up and treated as one big project

Question 3

percentage of sales approach

Answer 3

a financial planning method in which accounts are varied depending on a firm’s predicted sales level

Question 4

dividend payout ratio

Answer 4

the amount of cash paid out to shareholders by net income

Question 5

retention ratio

Answer 5

the addition to retained earnings divided by net income, also called the plowback ratio

Question 6

capital intensity ratio

Answer 6

a firms total assets divided by its sales, or the amount of assets needed to generate $1 in sales

Question 7

internal growth rate

Answer 7

the maxim growth rate a firm can achieve without external financing of any kind

Question 8

sustainable growth rate

Answer 8

the maximum growth rate a firm can achieve without external equity financing while maintaining a constant debt-equity ratio