Finance Flashcards
Non-current assets
Anlagevermögen
-useful life of more than a year
-land, property, plant, trademarks
Current assets
Umlaufvermögen
-less than a year to turn into cash
-cash, inventory, accounts receivable
Liabilities
Verbindlichkeiten
-debt, loan
-external financial resource
Retained earnings
Gewinnrücklagen
+Equity = Internal Financial Resources
Future Value of a single cash flow
Future value of some amount of money today. Expected ending value of the investment after N periods.
-> assume that we can reinvest our money every year at the same interest rate r
Present Value of Cash flows
The current value of a future sum of money or stream of cash flows given a specified rate of return.
-> this formula when different cash flows per period
Present value of perpetuities
Constant stream of identical cash flows with no end
When a G is given its with a growing rate
Present value of annuities
Present value of N equal cashflows paid at regular intervals
Future Value of Annuity
Value of annual payment at the end of the period
Investment Decision rules
-profitable -> creates value&increases value of firms
-Revenues-cost>0
-Return>Hurdle Rate (minimum acceptable rate
-NVP >0
Investment side
Assets=Non-current assets + Current assets
Financing side
Liabilities+Equity
Premium bond
-bond trading above its face value
-coupon rate higher than current market interest rates
Discount bond
-issued for less than its face value
-trades in the market for less than the face value
Zero-Coupon-Bond
-does not pay interest
-face value paid at maturity
-difference between purchase price and face value indicates the investors return
-estimated interest rate, yield, paid
-> you get at the end more than you paid for it in the beginning
Floating rate bonds
-coupon periodically adjusted
-coupon rate: reset once a year to the current short-term treassury
-> according to current interest rates
-> much more stable in trading
Convertible bonds
-can be exchanged against other financial securities
- e.g. into stocks
CCC=Cash Conversion Cycle
Receivable days Acc + Inventory days - Accounts Payable days
Inventory Days
Inventory / Average Daily Cost of Goods Sold
Inventory Days
Inventory / Average Daily Cost of Goods Sold
Accounts Receivable Days
Accounts Receivable/ Average Daily Sales
Accounts Payable days
Accounts Payable/ Average Daily Cost of Goods Sold
Average daily cost of goods sold
Cost of goods sold/ 365
Average daily sales
Sales/365
Lease payment
Increases Expense
Operating Lease
-lessee reports the entire lease payment as an operating expense
-does not deduct depreciation expense
Financial lease
-lessee lists assets on balance sheet and incurs depreciaction expenses
-lists PV of future lease payments as a liabikity and deducts the interest portion as an interest expense
Why leasing cheaper than buying
-reduced resale costs
-exonomies of scale and efficiency gains
-better package deals
-reduced risk for the creditor
-possible tax advantages
-avoiding capital expenditure cost
Disadvantage
-lessee has less of an incentive to take proper care of an asset
-you might get a service that you don’t need
-wrong feeling of financial stability
