Chapter 4 Flashcards
pro forma statements/pro formas
a forecast balance sheet, income statement, and statement of cash flows
planning horizon
The long-range time period on which the financial planning process focuses (usually the next two to five years).
A financial planning method in which accounts are varied depending on a firm’s predicted sales level.
percentage of sales approach
The addition to retained earnings divided by net income.
retention ratio/plowback ratio
internal growth rate
The maximum growth rate a firm can achieve without external financing of any kind.
aggregation
The process by which smaller investment proposals of each of a firm’s operational units are added up and treated as one big project.
retention ratio/plowback ratio
The addition to retained earnings divided by net income.
A firm’s total assets divided by its sales, or the amount of assets needed to generate $1 in sales.
capital intensity ratio
The maximum growth rate a firm can achieve without external financing of any kind.
internal growth rate
Financial planning
the way in which financial goals are to be achieved
A normal case
A plan making the most likely assumptions about the company and the economy
The long-range time period on which the financial planning process focuses (usually the next two to five years).
planning horizon
A plan making relatively pessimistic assumptions about the company’s products and the state of the economy
A worst case
sustainable growth rate
The maximum growth rate a firm can achieve without external equity financing while maintaining a constant debt–equity ratio.
The amount of cash paid out to shareholders divided by net income.
dividend payout ratio
A best case
A plan required to work out a case based on optimistic assumptions
dividend payout ratio
The amount of cash paid out to shareholders divided by net income.
a forecast balance sheet, income statement, and statement of cash flows
pro forma statements/pro formas
The maximum growth rate a firm can achieve without external equity financing while maintaining a constant debt–equity ratio.
sustainable growth rate
percentage of sales approach
A financial planning method in which accounts are varied depending on a firm’s predicted sales level.
capital intensity ratio
A firm’s total assets divided by its sales, or the amount of assets needed to generate $1 in sales.
A plan making the most likely assumptions about the company and the economy
A normal case
The process by which smaller investment proposals of each of a firm’s operational units are added up and treated as one big project.
aggregation
A plan required to work out a case based on optimistic assumptions
A best case
the way in which financial goals are to be achieved
Financial planning
A worst case
A plan making relatively pessimistic assumptions about the company’s products and the state of the economy
Dividend Payout Ratio =
Cash Dividends/Net Income
Sales Increase Percent
New-Old/Old
Retention Ratio (AKA Plowback Ratio) =
1-divident payout ratio
Internal Growth Rate =
ROA X b/1 - (ROA X b)
* b = 1-dividend payout ratio
Sustainable Growth Rate =
ROE x b/1 - (ROE x b)
