Financial Flashcards
Morton Company needs to pay a supplier’s invoice of $50,000 and wants to take a cash discount of 2/10, net 40. The firm can borrow the money for 30 days at 12% per annum plus a 10% compensating balance.
$50,000(1.00 - 0.02) + 0.10(Loan) = Loan
$49,000 + 0.10X = X
$49,000 = X - 0.10X
$49,000 = 0.90X
$54,444 = X
Per Per FASB ASC 820, the disclosures related to fair value measurements contained in the financial statements need to:
1.allow enough info so someone can reasonably assess how FV was developed and unoservable inputs ( level 3) inputs can be assessed
Asset turnover
=sales rev / average total assets
residual income
=operating income (or net income) - imputed interest rate on assets used
Accounting rate of return
uses forecasted net income …. all others use forecasted cash flows
inventory turnover ratio
formula
COGS/Avg inv
COGS Formula
revenue - COGS = Gross profit
quick (acid test) ratio formula
total current assets (not inv or prepaids) / current liabilities
current ratio formula
current assets ( includes inv) / current liabilites
J.M. Keynes actually had four reasons for holding cash (money-demand):
The “Income-motive”-trasactional
The “Business-motive”-transactional
The “Precautionary-motive”- emergencies
The “Speculative-motive”- stocks, bonds, trading
poision put clause
borrower must repay bonds if large quantity of common stock is held by a single investor and the bond rating is downgraded. Used as a defensive stategy
does depreciation have any affect on capital budgeting?
Only when it comes to taxes. captial budgeting has to to with cash outflows.
what measures inflation
- gross domestic profit deflator
- consumer price index
- wholesale price index
Cash management objectives include the following:
- Having enough cash on hand to meet the needs of the company
- Investing idle cash to maximize the wealth of the stockholders
-Not necessarily to Maximize cash balances.
Project Profitability Index =
NPV of Project ÷ Investment Required.
