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Hospitality Business > Finance Terms > Flashcards

Finance Terms Flashcards

1
Q

What is the sustainable growth ratio?

A

The rate to which your company can grow with debt financing.

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2
Q

What is the internal growth rate?

A

The rate at which your company can grow without taking on debt.

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3
Q

What is the cash coverage ratio?

A

A metric that measures a company’s ability to pay off its debts using cash on hand.

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4
Q

What is the return on assets formula?

A

Net income / Net Assets.

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5
Q

What is the total asset turnover formula?

A

Net sales / average total assets

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6
Q

What is the price to earning formula?

A

Share price / Earnings per share

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7
Q

What is the times interest earned ratio?

A

EBIT / Interest expense.

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8
Q

What is the current ratio?

A

Current assets / current liabilities

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9
Q

What is ratio analysis?

A

A quantitative method of gaining insight into a company’s liquidity, operational efficiency, and profitability.

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10
Q

What is the difference between the quick and current ratios?

A

Quick ratio does not include inventory.

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11
Q

What is the total debt ratio?

A

Total assets - total equity / total assets.

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12
Q

What is the times interest earned ratio?

A

EBIT / Interest

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13
Q

What is the cash coverage ratio formula?

A

EBIT + (depreciation and amortization).

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14
Q

What is enterprise value?

A

A measure of a company’s total value, thought to be more comprehensive that market capitalization.

EV - Market Cap + Total Debt - Cash

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15
Q

EV / EBITA = What?

A

Enterprise value multiples, which is a comprehensive way to measure a company’s ROI.

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16
Q

The DuPont method disaggregates ROE into what three ratios?

A

Profit Margin
Total Asset Turnover
Equity Multiplier

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17
Q

What is total Asset Turnover?

A

Net sales / average total assets

Measures the company’s ability to generate revenue from its assets.

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18
Q

What is equity multiplier?

A

A measure of the portion of a company’s assets that are financed by stock rather than debt.

Total assets / Total equity.

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19
Q

IN the financial planning model, the external financing needs (EFN) as shown on a pro forma balance sheet is equal to the change in assets minus what?

A

The changes in both liabilities and equity.

20
Q

What is the retention ratio?

A

The proportion of net income retained in the business.

21
Q

What is the plow back ratio?

A

Same as the retention ratio - it measures how much cash a firm retains in the business

22
Q

What is the formula for present value of an investment?

A

FV1
_______
1 + r

23
Q

What is the difference between simple interest and compound interest?

A

In compound interest, the interest on the initial investment makes money as well.

24
Q

What is present value factor?

A

A factor used to calculate the present value of an amount to be received in a future period.

25
Q

What is discounting?

A

Calculating the present value of a future amount. The process is the opposite of compounding.

26
Q

What is capital intensity?

A

A measure of the amount of assets needed to generate income for a unit.

27
Q

What is the NPV Rule?

A

Accept a project with a positive NPV and reject a project with a negative NPV.

28
Q

What are the three attributes of NPV?

A

NPV uses cash flows
NPV uses ALL the cash flows of the project
NPV discounts the cash flows properly

29
Q

What is the payback period?

A

The length of time it takes for a project to return its initial investment.

30
Q

What is the discounted payback period?

A

The length of time it takes for a project’s discounted cash flow to equal it’s initial investment.

31
Q

What is cost of capital?

A

Cost of capital is the cost of funds used for financing a business. The return investors expect.

32
Q

What is the internal rate of return?

A

The discount rate at which the net present value of an investment is zero. It is a method of evaluating capital expenditure proposals.

33
Q

WHat is the profitability index?

A

A method used to evaluate projects. It is the ratio of the present value of the future expected cash flows after initial investment divided by the initial investment.

34
Q

What is the biggest difference between finance and accounting techniques?

A

Finance uses cash flows, accounting uses income and / or earnings.

35
Q

What is a sunk cost?

A

A cost that has already occurred and cannot be reversed.

36
Q

What is an opportunity cost?

A

The most valuable alternative that is given up.

37
Q

What is erosion?

A

Cash flow transferred to a new project from customers and sales of other products of the firm.

38
Q

What is synergy?

A

A positive incremental net gain associated with the combination of two firms through a merger or acquisition.

39
Q

What is real cash flow?

A

A cash flow expressed in terms of purchasing power, not actual dollars.

40
Q

What is a sensitivity analysis?

A

An analysis of the effect on the project when there is some change in a critical variable such as sales or costs.

41
Q

What is a BOP analysis?

A

Best, optimistic, pessimistic

42
Q

What is a coupon?

A

The stated interest payment on a debt instrument.

43
Q

What is a bond face value?

A

The principal value of a bond that is repaid at the end of the term. Also referred to as par value or principal.

44
Q

What is a coupon rate?

A

The annual coupon a bond pays divided by its face value.

45
Q

What is the yield to maturity?

A

The discount rate that equates the present value of the interest payments and par value of a bond with the current price of a bond.

Hospitality Business (4 decks)

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