Chapter6: Quantitative Methods Of Evaluating Businesses And Investments

Question 0

EBIT Earnings before interest and taxes

Answer 0

Revenue- operating expense before taxes and interest

Question 1

Operating income

Answer 1

Gross income-(operation expenses + depreciation); operating profit; income from core operations minus day to day costs and depreciation.

Question 2

Net income

Answer 2

Total income - depreciation, interest, tax, liabilities, and other expense

Question 3

Cash flow

Answer 3

Net income + depreciation +/- other charges to income

Question 4

Operating expenses

Answer 4

Cost of goods sold COSG

Question 5

EBITDA Depreciation and amortization

Answer 5

To determine profitability between companies

Question 6

Profit Margin

Answer 6

Net income divided by sales; percentage of every dollar kept in earnings.

Question 7

Operating Margin

Answer 7

Operating profit divided by net sales; proportion of money left after paying variable costs.

Question 8

Interest coverage ratio

Answer 8

Ebit divided by annual debt interest payments; less than 1.5 not good; how easily can pay debt.

Question 9

Price-earnings ratio

Answer 9

Market value per share divided by earnings per share.

Question 10

Price to book ratio

Answer 10

Current closing price of stock divided by book value per share

Question 11

Earnings per share

Answer 11

Net income divided by number if shares outstanding

Question 12

Balance sheet

Answer 12

Picture of assets and liabilities at a specific time; Shareholder’s/Equity=total assets - total liabilities

Question 13

Assets

Answer 13

Current, fixed, intangible. Cash:owned and used by company:trademarks, patents, copyrights

Question 14

Liabilities

Answer 14

Current liabilities; paid within the year

Question 15

Working capital

Answer 15

Current assets - current liabilities

Question 16

Shareholder’s/ Equity

Answer 16

Stock, common and preferred.
Capital surplus, premiums in excess of the par value
Retained earnings, net profit retained for future use.

Question 17

Future value Pn=Po(1+r)n ; in months Pn=Po(1+r/12)n

Answer 17

Pn=Po(1+r)n Pn=future value of Po
Po=beginning amount inv
r =rate of return
n =number of compounding periods

Question 18

Holding period return

Answer 18

(P1+D-Po)/Po P1 is ending value of investment; D is dividend or cash flow; Po is beginning value of investment.