Financial Equations and Calculations Flashcards
Inventory turnover =
inventory turnover = sale or cost of doing goods/inventory
sale or cost of doing goods
——-(divided by)—————
inventory
= inventory turnover
days’ sales in inventory =
days sales in inventory =
(ending inventory x 365 days)
——–(divided by)—————
sales or cost of goods sold
(ending inventory x 365 days)
——–(divided by)—————–
sales or cost of goods sold
= days’ sales in inventory
accounts receivable turnover =
credit sales
–divided by–
accounts receivable
credit sales
—divided by—
accounts receivable
accounts receivable =
ACP
Average Collection Period
average collection period (ACP) =
(accounts receivable x 365)
—divided by—-
credit sales
(accounts receivable x 365 days)
—divided by—
credit sales
= average collection period (ACP)
accounts payable turnover =
cost of goods sold
—divided by—
accounts payable
definition: accounts payable
Accounts payable (AP) is a short-term debt and a liability on a balance sheet where a business owes money to its vendors/suppliers that have provided the business with goods or services on credit.
definition: accounts receivable
Accounts receivable (AR) are the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. Accounts receivable are listed on the balance sheet as a current asset. Any amount of money owed by customers for purchases made on credit is AR.
fixed asset turnover =
sales
—divided by—
net fixed assets
sales to working capital =
sales
—divided by
working capital
sales
—divided by—
net fixed assets
fixed asset turnover
sales
—divided by—
working capital
sales to working capital
total asset turnover =
sales
—divided by—
total assets
sales
—divided by—
total assets
total asset turnover
current ratio =
current assets
—divided by—
current liabilities
current assets
—divided by—
current liabilities
= current ratio
why is finance important?
because value is important
examples of value in financing
products/services, common stock, value of the firm itself
what should all managers strive to do , in terms of financing within their firm
all managers should maximize the intrinsic value of their firm.
finance has an impact on every important decision made by business managers
hx of New Coke
Coke II aka “New Coke” was introduced in 1985 to compete w/Pepsi
-Loyal coke believed: product did not need changing & mad the original product went off the shelves
-3 months after introduction: original product “Coke Classic” reintroduced. 7 years later, Coke II d/c.
***this is often used as a business case study for developing/introducing products
