Corporate Finances E2 Flashcards
In calculating gross profits, a firm utilizing LIFO inventory accounting would assume that
Sales we’re from the current production, until current production was depleted, and then sales were from the beginning inventory
Net cash flow is equal to
Cash receipts minus cash payments
XYZ’s receivables turnover is 12 X. The accounts receivable at your end are $540,000. The average collection period is 30 days. What was the sales figure for the year? Assuming all sales are on credit?
Receivables turnover ratio equals sales divided by average accounts receivable. 6,480,000.
XYZ company has forecasted June sales at 400 units and July sales of 700 units. The company maintains ending inventory of 125% of next months sales. June‘s beginning inventory reflects this policy. What is June’s required production?
775 units
Ratio. Analysis can be useful for.
Measuring the effects of debt or equity financing, historical trend analysis within a firm, comparison of ratios within a single industry. All answers are correct
Asset utilization ratios
Relate balance sheet assets to income statement sales
Suppose the projected net cash outflow for January is $6500. In that case, the beginning cash balance is $16,000. The minimum cash balance is $5000. In the beginning loan balance is $4500: what will be the cumulative amount of the loan at the end of January?
0$
The largest cash payment is normally the cost of good sold
True
Current ratio formula
Current ratio = current assets, divided by current liabilities
Disinflation as compared to inflation, it would normally be good for investments in
Bonds
Which of the following is not directly included in the pro forma income statement analysis
Retained earnings
Which of the following is not a debt utilization ratio
Fixed asset turnover
Last in first out method means that the cost of a company’s oldest inventory is used in the cost of goods sold calculation
False
The first step in the percentage of sales forecasting method is to establish percentages
True
When developing a pro forma income statement, which steps are not used
Establish a marketing projection
A common size balance sheet can be used to compare the firm with itself overtime
True
A firms long-term asset equals $100,000 total assets equals $400,000 inventory equals $50,000 and current liabilities equals $200,000. What are the firms, current ratio and quick ratio
1.5 current ratio, 1.25 quick ratio
Which of the following is not an asset utilization ratio
Return on assets
A firm has total assets of $3 million and stockholders equity is $1 million. What is the debt to total asset ratio?
67%
First in first out method means that the cost of a companies old is inventory, is used in the cost of goods sold calculation
True
Information used in a cash budget includes information from an income statement
True
If ABC’s sales are $1 million accounts receivable are $100,000 inventory is $45,000 and fixed assets are $132,000. What is ABC’s fixed asset turnover
7.58
A conservative company experiencing rapid price increases for its products. Would use LIFO to try to allow the inventory that was just purchased.
At a higher price, to be moved to cost of goods sold, showing a lower net income
The difference between total receipts and total payment is referred to as
Net cash flow
In the percent of sales method, an increase in dividends
Will increase required new funds
Profitability ratio’s
Profit margin, return on assets, return on equity
Asset utilization ratios
Accounts receivable turnover,
average collection period
Inventory turnover
fixed asset turnover
total asset turnover
Liquidity ratios
Current ratio, quick ratio
Debt utilization ratios
Debt to total assets,
times interest earned,
fixed charge coverage
Debt to total assets
Total debt / total assets
Times interest earned
Income before interest and taxes/interest
Fixed charge coverage
Income before fixed charges, and taxes/fixed charges
Current ratio
Current assets/current liabilities
Quick ratio
Current assets - inventory/current liabilities
Accounts receivable turnover
Sales (credit)/accounts receivable
Average collection period
Accounts receivable/average daily credit sales
Inventory turnover
Sales / inventory
Fixed asset turnover
Sales/fixed assets
Total asset turnover
Sales/total assets
Profit margin
Net income/sales
Return on assets
Net income/total assets
Return on equity
Net income/stockholders equity
Return on assets/(1 minus debt/asset)
Three critical components of the DuPont, three phase formula that break down return on equity
Profit margin, asset, turnover, financial leverage
Types of financial forecasting
Short term/pro forma statements, long-term estimates through the percentage of sales method
Pro forma income statement steps
Establish sales production,
production plan,
produce pro forma income statement
construct cash budget,
construct pro forma balance sheet
Cash budget steps
Determine monthly sales,
determine cash inflows
determine cash outflows,
determine net cash flow,
Net cash flow
Cash receipts - cash payments
