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APM > Chapter 7 > Flashcards

Chapter 7 Flashcards

1
Q

formula for total shareholder return

A

dividend yield + capital gain or loss

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2
Q

formula for dividend yield

A

dividend per share / share price at start of year

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3
Q

formula for capital gain / loss

A

gain or loss / share price at start of year

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4
Q

definition of profitability

A

how well a company performs given its asset based

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5
Q

definition of liquidity

A

short term financial position

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6
Q

definition of gearing

A

measure of financial risk

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7
Q

definition of investor performance

A

share value and dividends

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8
Q

formula for ROCE

A

PBIT / average capital employed x100

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9
Q

formula for capital employed

A

total assets - current liabs

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10
Q

advs of financial ratio analysis

A

easy to compare
easy to look at changes over time
can compare to companies of different sizes

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11
Q

disadv’s of financial ratio analysis

A

tendency to focus on short term performance

focusses only on variables that are monetary

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12
Q

what are appropriate benchmark for ratio analysis

A

over time
other companies
internal targets

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13
Q

what is residual income

A

a measure of a companys profit after deducing an imputed cost of capital

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14
Q

formula for RI

A

PBIT - (estimated cost of capital x capital employed)

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15
Q

what is the estimated cost of capital

A

usually weighted average cost of capital, however it can be adjusted based on risk

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16
Q

what is EBITDA

A

earnings before interest, tax, depreciation, and amortisation

17
Q

advantages of EBITDA

A

can be used to measure managements performance, as these are things they have no control over

tax and interest are unrelated to performance

useful for companies with low levels of tangible assets

depreciation and amortisation are due to historical decisions

18
Q

drawbacks of EBITDA

A

it allows a company to paint a better picture of the financials

it doesn’t account for cash to pay interest and tax

19
Q

what does IRR assume

A

that cash flows after the investment phase are reinvested at the projects IRR over the life of a product

20
Q

what does MIRR assume

A

funds are reinvested at the investors minimum required return

APM (16 decks)

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