Chapter 13 Flashcards
5 key areas to consider in a financial analysis
1) revenue model
2) cost structure and cost drivers
3) margin requirements
4) cash operating cycle (COC)
5) capitalization requirements (ROIC)
total costs associated w/ delivering the organization’s products or services to the marketplace (procurement of parts, manufacturing, distribution, marketing and sales, administration, post-purchase service and support
= direct/variable costs + indirect/fixed costs
cost base
costs that are directly tied to the manufacturing of a product or the delivery of a service depending on the type of business being assessed
Variable (direct) Costs
costs that, are not directly tied to the manufacturing of a specific product or the delivery of a specific service, but exist as a result of conducting our business and operating our company
Fixed (indirect) Costs
costs the organization commits itself to w/I an operating year, often spent in advance or at the front end of a man
committed costs
the level of sales revenue or volume that is required for the organization to cover all of its costs
○ Considered to be the minimum acceptable position for the business in the short term
○ = total fixed costs / (selling price per unit - variable costs per unit)
○ OR = fixed costs / (1 - VC%)
breakeven point
represents the portion of an organization’s revenue that is left over after paying for an identified level of costs
○ Key indicator of the overall operating efficiency of an organization
margin
refers to the amount of time it takes for an organization to recover the cash (product is sold and money is received) it has paid out for the development, production, and distribution of products
Cash Operating Cycle (COC)
refers to an organization’s mixture (use) of debt, internal cash reserves, and external equity-based investments in financial support of operational activities
Capital Structure
equal total revenue minus operating expenses
operating profits
refers to the dollar amount of net earnings accumulated over the history of an organization that it has chosen to hold within the organization
Retained Earnings
Refers to debt that an organization has taken on in support of its business activities
Credit Facilities (debt financing)
refers to debt obligations that an organization takes on for a short period of time (less than 1 yr.), key factor in assessing liquidity of a company
Short-term credit facilities
money owed by an organization to its suppliers and other short-term service providers
Accounts Payable
money owed by customers of the organization for products or services that the organization has delivered to such customers, but has not yet received payment for
Accounts receivable
an arrangement with a lending institution that provides an organization w/ a pre-arranged borrowing ceiling (max) that the org can draw on at any time, and in any amount up to the agreed limit
Line of credit
refers to capital assets or monetary assets used to secure a credit facility, would be used to pay off lender in event that the organization cannot meet the credit facility repayment obligations
Collateral
represent debt that an organization obligates itself to repay over a time frame that exceeds one year
Long-Term Credit facilities
total sum of money over and above the principal borrowed paid by an organization as a result of incurring and repaying a debt obligation. This would include interest paid as well as costs incurred in setting up the credit facility.
Cost of Borrowing
a credit facility with which an organization borrows money for a stipulated period of time. In return for the use of these funds, the organization promises to pay the holder of the bond an agreed-upon amount of interest at regular intervals (generally, semi-annually) during the period of time for which the funds are borrowed
bond
a credit facility that is backed by real estate collateral, and that sets forth a defined schedule of periodic payments for the full repayment of the debt owed, plus interest, over a defined period of time
mortgage
a credit facility under which an organization borrows a stipulated amount of money of a defined period of time (exceeding 1 yr.), and w/ a defined interest rate schedule (fixed or variable)
long-term note
represent a legal obligation to pay a service provider w/ an agreed-upon amount of money, via a defined periodic payment schedule over an identified period, in return for the use of property, equipment, or some other service
lease obligations
equity capital that is obtained by an organization from private sources (not a public exchange)
private equity
