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Financial Analysis and Reporting > Chapter 6 > Flashcards

Chapter 6 Flashcards

1
Q

It focus on plans and policies to efficiently and satisfactorily meet production and merchandising requirements and minimize costs relative to inventories

A

Inventory management

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2
Q

The main objective is to get the right amount of inventory to best balance the estimate of actual savings, the cost of carrying additional inventory and the efficiency of inventory control

A

Inventory management

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3
Q

How many units should be ordered

A

Units can be ordered using economic order quantity (EOQ)

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4
Q

It is a function of demand carrying costs and ordering costs

A

Economic order quantity

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5
Q

It is a deterministic model that calculates the ideal order quantity given specified demand ordering or setup cost and carrying cost

A

Economic order quantity model

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6
Q

It is the quantity to be ordered which minimizes the sum of ordering cost and carrying cost

A

EOQ

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7
Q

This will decrease together with the order size

A

Ordering costs

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8
Q

This will increase together with order size

A

carrying costs

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9
Q

The two parts of ordering cost

A

Transportation and administrative costs of purchasing and costs of receiving and inspecting goods

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10
Q

Four parts of carrying cost

A

Storage cost
interest cost
spoilage
insurance

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11
Q

Assumptions under the economic order quantity model

A

…..

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12
Q

The formula of economic order quantity

A
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13
Q

Formula of computing ordering cost

A
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14
Q

Formula of computing carrying cost

A
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15
Q

When should the units be ordered

A

It can be ordered using the reorder point

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16
Q

The objective of knowing this is to prevent stockout problems

A

Reorder point

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17
Q

The period between the time the order is placed and received

A

Lead time

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18
Q

Normal lead time multiplied to the average usage

A

Normal lead time usage

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19
Q

(maximum lead time - normal lead time) *average usage

A

Safety stock

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20
Q

Reorder point who depend

A

If no safety stock
- Reorder point = normal lead time usage

If with safety stock
-safety stock + normal lead time usage

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21
Q

The primary sources of funds

A

bank loans
credit from suppliers (accounts payable)
accrued liabilities
long-term debt
common equity

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22
Q

As to cost this is generally lower

A

Short term financing

23
Q

As to cost this is generally higher

A

Long-term financing

24
Q

As to risk interest expense may fluctuate

A

Short term financing

25
Q

Ask to risk interest cost will be relatively stable over time

A

Long-term financing

26
Q

As to risk: bankruptcy a temporary recession may adversely affect its financial ratios and render it an able to repay this debt

A

Short term financing

27
Q

as to risk: bankruptcy temporary recessions will not adversely affect its financial ratios

A

Long-term financing

28
Q

Negotiation in this is faster

A

Short term financing

29
Q

Negotiation in this is slower

A

Long-term financing

30
Q

This has greater flexibility

A

Short term financing

31
Q

This has lesser flexibility

A

Long-term financing

32
Q

Short-term credit agreements generally have fewer restrictions

A

Short term financing

33
Q

Long term loan contracts may contain provisions that constrain the firm’s future actions in order to protect the lender

A

Long-term financing

34
Q

Sources of credit

A

Trade credit (accounts payable)
accruals (accrued expenses)
deferred income
commercial bank loans
commercial paper

35
Q

This automatically obtained when a firm purchases goods or services on credit from a supplier

A

trade credit

36
Q

It arises spontaneously from ordinary business transactions

A

Trade credit

37
Q

It is the largest source of short term financing for many firms both large and small

A

Trade credit

38
Q

Two types of trade credit

A

Free trade credit
costly trade credit

39
Q

It is the credit received during the discount .

A

Free trade credit

40
Q

Credit taken in excess of free trade credit whose cost is equal to the discount loss

A

Costly trade credit

41
Q

If a supplier allows a trade discount for prompt payment this is incurred if the discount is not avail the off

A

Implicit cost

42
Q

It represent liabilities for services that have been provided to the company but have not yet been paid for

A

accruals(accrued expenses)

43
Q

This is the customers advance payments or deposits for goods or services that will be delivered at some future date

A

Deferred income

44
Q

This results in a higher effective borrowing costs than simple interest because the bank deduct interest in advance so the borrower receives less than the face value of the loan

A

Discount interest

45
Q

This results in a higher effective borrowing cost

A

Compensating balance

46
Q

This is an amount of cash that the firm is unable to use

A

Compensating balance

47
Q

An agreement between a bank and a borrower indicating the maximum amount of credit the bank will extend to the borrower

A

Line of credit

48
Q

This is a formal line of credit and this makes the bank legally obligated to honor and it receives a commitment fee

A

Revolving credit agreement

49
Q

formula of regular interest rate

A

Interest / borrowed amount

50
Q

Formula of discounted interest rate

A

Interest / borrowed amount - interest

51
Q

Formula of effective interest rate

A

Interest / borrowed amount - interest - compensating balance

52
Q

This is a short term and secured note payable issued in large denominations by major companies with excellent credit ratings

A

Commercial paper

53
Q

Maturities of this usually do not exceed to 70 days

A

Commercial paper

54
Q

Formula of effective annual interest rate

A

Interest cost per period / usable loan amount

Financial Analysis and Reporting (7 decks)

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