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Corporate Finance > Corporate Finance Theory > Flashcards

Corporate Finance Theory Flashcards

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1
Q

What is assets always equal to?

A

Liabilities + Shareholder’s Equity

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2
Q

What is equity?

A

Is what shareholders would have to remain after the firm has discharged its obligations

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3
Q

What is liquidity?

A

refers to the ease and rapidity with which assets can be converted into cash.

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4
Q

Name current asses

A

Trade receivables and inventories

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5
Q

Name non-current assets

A

Property, equipment, trademark or patent

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6
Q

The formula for Income statement

A

Income= Revenue - Expenses

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7
Q

The formula for EPS (Earnings per share)

A

Profit for the period attributed to equity holders/Total shares outstanding

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8
Q

The formula for NWC (Net working capital)

A

Net working capital= Current assets -Current liabilities

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9
Q

The formula for Cash flows from operating activities

A

CF(A)=CF(B)( Cash flows to firms creditors)+CF(S)( Cash fl flows to equity investors)

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10
Q

Current Ratio

A

Current Assets/ Current Liabilities

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11
Q

Which is the least liquid current asset

A

Inventory

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12
Q

Quick/Acid-Test Ratio

A

current assets-inventory/current liabilities

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13
Q

Cash ratio

A

Cash and cash equivalents/Current Liabilities

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14
Q

Total debt ratio

A

Total assets-total equity/Total assets

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15
Q

Interest coverage ratio

A

EBIT/Interest

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16
Q

Cash coverage ratio

A

EBIT+Depreciation/ Interest

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17
Q

What current ratio, quick ratio, and cash ratio measure?

A

Liquidity

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18
Q

What total debt ratio, interest coverage ratio, and cash overage ratio measure?

A

Long term leverage

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19
Q

Inventory turnover

A

Cost of goods sold / Inventory

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20
Q

Receivables turnover

A

Sale/Trade receivables

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21
Q

Total asset turnover

A

Sales/Trade receivables

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22
Q

Profit margin

A

Net operation income/sales

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23
Q

Return on assets(ROA)

A

Net income/Total assets

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24
Q

Return on equity (ROE)

A

Net income/ Total equity

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25
Q

What ROA, ROE, and profit margin measure?

A

Profitability, how efficiently the firm manages its operations

26
Q

Earnings per share (EPS)

A

Net income / Shares outstanding

27
Q

Price-earnings ratio

A

Price per share/EPS

28
Q

market-to-book ratio

A

Market value per share/Book value per share

29
Q

DuPont identity

A

Profit margin * Total asset turnover * Equity multiplier

30
Q

Present values of investments (one period case)

A

C/1+r

31
Q

NPV(One period case)

A

-Cost+PV

32
Q

FV (t=1…n)

A

C(1+r)^t

33
Q

Calculating an investment m times a year

A

C(1+r/m)^m

34
Q

EAR (effective annual return)

A

(1 +r/m)^m-1

35
Q

FV with compounding

A

C(1-r/m)^mT

36
Q

FV with continuous compounding

A

PV*e^rT

37
Q

Perpetuity PV

A

PV=c/r

38
Q

Growing perpetuity PV

A

PV=C/r-g

39
Q

Annuity PV

A

c/r[1-(1/1+r)^t]

40
Q

Annuity due PV

A

C* (1-(1+r)^-t)/r*(1+r)

41
Q

FV annuity

A

C[((1+r)^t-1)/r]

42
Q

Growing annuity PV

A

PV=C/r-g[1-(1+g/1+r)^t]

43
Q

What is a bond?

A

A certificate showing that a borrower owes a specific amount

44
Q

PV of a pure discount bond

A

FV/(1+R)^T

45
Q

PV of a level coupon bond

A

C*A(T,R)+F/(1+R)^T

46
Q

PV of a consol bond

A

C/R

47
Q

What do Dividends value?

A

Equity

48
Q

Value of Firms equity

A

Po=ΣDivt/(1+R)^t

49
Q

Value of Po for zero growth

A

Div1/R

50
Q

Value of Po for constant growth

A

Div1/r-g

51
Q

G estimation

A

Retention ratio*ROE

52
Q

Discount rate R

A

Div1/Po+g

53
Q

Payout ratio

A

1-Retention ratio

54
Q

What cash cow means?

A

The firm does not invest

55
Q

Value of equity when a firm is acting as a cash cow

A

EPS/R=Div/R

56
Q

Basic Investment rule

A

Accept if NPV>0, Reject if NPV<0

57
Q

Average accounting return (AAR)

A

AAR= Average net income/(Investments per yera/t+1)

58
Q

IRR rule with first cash flow negative, rest positive

A

Accept if IRR>R, reject IRR

59
Q

IRR rule with first cash flow positive, rest negative

A

Accept if IRRR

60
Q

PI (Profitability index)

A

PV of cash flows subsequent to initial investment/Initial investment

61
Q

PI rule

A

Accept if PI>1, reject if PI<1

Corporate Finance (1 decks)

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