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Corporate Finance > Chapter 3 Textbook/slides > Flashcards

Chapter 3 Textbook/slides Flashcards

1
Q

A standardized financial statement presenting all items in percentage terms is known as

A

Common-Size Statement

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2
Q

When balance sheet items are shown as a percentage of assets and income statement items are shown as a percentage of sales this is known as a

A

Common-Size Statement

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3
Q

What is the cash percentage of $165 in assets compared to $3,373 in total assets?

A

4.9%

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4
Q

T/F- the totals of the common-size statements may not all check to 100% due to rounding errors

A

True

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5
Q

What is another way to avoid problems involved in comparing companies of different sizes by calculating and comparing

A

Financial Ratios

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6
Q

Relationships determined from a firm’s financial information and used for comparison purposes are recognized as

A

Financial Ratios

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7
Q

What are the 5 traditional grouped categories of financial ratios?

A

1) Short-term solvency, or liquidity, ratios
2) Long-term solvency, or financial leverage ratios
3) Asset Management, or turnover ratios
4) Profitability Ratios
5) Market Value Ratios

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8
Q

What are the 3 liquidity ratios?

A

Current Ratio
Quick Ratio
Cash Ratio

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9
Q

Short term solvency ratios as a group are intended to provide information about a firm’s liquidity, and these ratios are sometimes called?

A

Liquidity Measures

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10
Q

What is the primary concern of a company with solvency in the short-term?

A

The firm’s ability to pay its bills under the short run without undue stress

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11
Q

T/F- Liquidity ratios are interesting to short-term creditors b/c financial managers are constantly working with banks and other short-term lenders

A

True

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12
Q

What is one advantages of looking at current assets and liabilities?

A

Their book value and market values are likely to be similar

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13
Q

What is the current ratio formula?

A

Current Assets DIVIDED BY Current Liabilities

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14
Q

What kind of test is the current ratio test?

A

Short-term liquidity

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15
Q

To a creditor, particularly a short-term creditor such as supplier, the HIGHER OR LOWER current ratio results in the better

A

HIGHER

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16
Q

Borrowing money in the long term to raise money, increase cash in the short run and an increase in long-term debt, bu have no effect on current liabilities. This would raise or lower current ratio?

A

Raise

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17
Q

What is the formula for the Quick Ratio test?

A

Current Liabilities

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18
Q

What is often the least current asset?

A

Inventory

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19
Q

What is the formula for cash ratio?

A

Current Liabilities

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20
Q

What type of ratios are intended to address the firm’s long-run ability to meet its obligations, or more generally, its financial leverage?

A

Long term Solvency ratios

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21
Q

What are the 5 financial leverage ratios?

A

Total Debt Ratio
Debt- Equity Ratio
Equity Multiplier
Times Interest Earned
Cash Coverage

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22
Q

Which ratios takes into account all debts of all maturities to all creditors that can be defined in several ways?

A

Total Debt Ratio

23
Q

What is the formula for total debt ratio?

A

Total Assets

24
Q

What is the formula for debt-equity ratio?

A

Total debt/ Total Equity

25
Q

What is the formula for equity multiplier?

A

Total assets / Total Equity = 1+ Debt-Equity Ratio

26
Q

1 + Debt-equity ratio is which formula?

A

Equity multiplier

27
Q

What is the formula for times interest earned

A

Earnings before interest taxes DIVIDED BY
Interest

28
Q

What is the cash coverage formula?

29
Q

What are the types of asset management ratios?

A

Inventory Ratios
Receivable Ratios
Payables Ratios
Asset turnover ratios

30
Q

What are the two different types of inventory ratios?

A

Inventory Turnover
Days’ Sales in Inventory

31
Q

What is the formula for Inventory Turnover?

A

COGS DIVIDED Inventory

32
Q

What is the formula for days sales in inventory?

A

365/ Inventory

33
Q

What are the two different types of receivables ratios?

A

Receivable Turnover
Days Sales in Receivables

34
Q

What is the formula for Receivables Turnover?

A

Sales / AR

35
Q

What is the formula for days sales in receivables?

A

365 / Receivables Turnover

36
Q

What are the two different types of payable ratios?

A

Payables Turnover
Days’ Costs in Payables

37
Q

What is the formula for Payables Turnover?

38
Q

What is the formula for days costs in payables?

A

365/ Payables Turnover

39
Q

What are the two different types of asset turnover ratios?

A

Total Asset Turnover
Capital Intensity Ratio

40
Q

What is the formula for Total Asset Turnover?

A

Sales / Total Assets

41
Q

What is the formula for capital intensity ratio?

A

1 / Total Asset Turnover

42
Q

What are the 3 profitability measures?

A

Profit Margin
Return on Assets
Return on Equity

43
Q

What is the profit margin formula?

A

Net income / Sales

44
Q

What is the return on assets formula?

A

Net income / Total assets

45
Q

What is the formula for return on equity?

A

Net income / total equity

46
Q

What are the 4 market value measures?

A

Earnings per share
Price earnings (PE) Ratio
Price-Sales Ratio
Market-to-book Ratio

47
Q

What is the earnings per share formula?

A

Net income / Shares outstanding

48
Q

What is the formula for price-earnings ratio?

A

Price per share / Earnings per share

49
Q

What is the formula for price-sales ratio?

A

Price per share / sales per share

50
Q

What is the formula for market-to-book ratio?

A

Market value per share / Book value per share

51
Q

What is the formula for the Enterprise value?

A

Total market value of the stock + Book value of all liabilities - Cash

52
Q

What is the formula for the EBITDA ratio?

A

Enterprise value / Earnings before interest + depreciation & amortization

Corporate Finance (8 decks)

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