EZC1 Flashcards
cash flow from CFO (2.5)
NI + depreciation + operating asset changes (non-cash) + liability changes (not NP) = CFO
about cash flow from investing/CFI (2.5)
change in PP&E
about cash flow from financing/CFF (2.5)
finance account changes (LTD, NP, E), plus dividends paid (old RE + NI - new RE)
calculation for dividends (2.5)
dividends = (old RE + net income) - new RE
current ratio (3.2)
current ratio = current assets/current liabilities
- don’t want to see it fall below 1
quick ratio (3.2)
quick ratio(acid test) = (current assets - inventory)/current liabilities
*accounts for only most liquid assets (removes inventory)
average collection period (3.2)
AR / Daily credit sales
inventory turnover (3.2)
COGS / inventory
total asset turnover (3.3)
- calculates $$ in sales generated per dollar of assets it owns
- higher is better
total asset turnover = sales/total assets
fixed asset turnover (3.3)
fixed asset turnover = sales/fixed assets
*fixed is total assets - current assets (or all non-current assets)
debt ratio (3.4)
debt ratio = total debt/total assets
times interest earned (3.4)
times interest earned = EBIT/interest expense
*tells how many times a company could pay its interest expenses given its profit
ROA and ROE (3.5)
- ROA: net income/total assets
- ROE: net income/total equity
- higher ROE than ROA means effectively using debt
DuPont Equation (3.6)
ROE = Net profit margin (net income/net sales) * asset turnover * leverage multiplier
*leverage multiplier=assets/equity
net profit margin equation (3.6)
net profit margin = NI/net sales
% of sales method (4.2)
1 Project sales revenues and expenses 2 Forecast change in spontaneous balance sheet accounts 3 Deal with discretionary accounts 4 Calculate retained earnings 5 Determine total financing needs/assets 6 Calculate DFN
discretionary financing need (4.2)
DFN = projected total assets - projected total liabilities - projected owners’ equity
4 ways to decrease DFN (4.4)
1 slow sales growth
2 examine capacity constraints (fixed asset needs)
3 lower dividend payout (and increasing RE)
4 increase net margin (means more cash retained)
sustainable growth rate/SGR (4.4)
SGR = ROE(1-b)
*b is dividend payout ratio, or dividends/net income
NI/S * S/A * A/E * (1-D/NI)
NI/E * (1-D/NI)
discount rate and bond price relationship (6.6)
inc/dec and dec/inc
*discount changes the I/YR rate on the calculator
preferred vs common stock (7.3)
- common: variable return, represents equity in a firm, vote for board, corporate governance, lowest claim in payout, can be bought and sold freely
- preferred: hybrid security with elements of debt and equity, fixed dividend payments, priority payout before common stock dividends, usually non-voting stock, lowers company cost of capital and increases value
CAPM (9.3)
required return = risk free rate+ beta(return on market-risk free rate)
*risk premium = return on market (Rm)-risk free rate (Rrf)
Build-Up Method (9.3)
bond yield + equity risk premium + micro-cap risk premium + start-up risk premium = required rate or return
WACC definitions (9.4)
C=mv common stock P=mv preferred stock D=mv debt V=(C+P+D) k_cs= cost common stock k_ps=cost preferred k_d=cost debt t=tax rate
