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BEC Study cards > Financial Management > Flashcards

Financial Management Flashcards

1
Q

Managing inventory & receivables (current assets & liabilities)

A

Financial Management

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2
Q

NWC : Current Assets - Current Liabilities

A

Financial Management

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3
Q

Shorten the cash conversion cycle

Don’t negatively impact operations

A

Financial Management

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4
Q

Average time needed to convert materials into finished goods and sell them

Average Inventory : (BI + E) / 2

Inventory Conversion Period : Average Inventory / Sales Per Day

A

Financial Management

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5
Q

Average time needed to collect A/R

RCP : Average Receivables / Credit Sales Per Day

A

Financial Management

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6
Q

Average time between materials and labor purchase and their A/P payment

Average Payables : (BP + EP) / 2

Payables Deferral Period : Average Payables / (COGS/365)

A

Financial Management

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7
Q

Amount of time it takes to receive a cash inflow (Customers) after making a cash outflow (Vendors)

Inventory Conversion Period
+ Receivables Collection Period
- Payables Deferral Period
: Cash Conversion Cycle

(Inventory Really (-Pays) Cash)

A

Financial Management

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8
Q

Liquid

Safe

A

Financial Management

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9
Q

Used for importing goods.

Issued by importer’s bank.

A

Financial Management

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10
Q

No interest cost if paid timely.

A

Financial Management

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11
Q

Customer Payments are sent to a bank-managed PO box.

Employees don’t have access to cash.
Deposits are more timely.
Interest income from deposits should pay for the Lockbox fees (if they don’t- lockbox is not beneficial)

A

Financial Management

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12
Q

Time it takes to mail a payment and have it clear your bank account

Maximize float on cash payments

Minimize float on cash receipts

A

Financial Management

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13
Q

Regional bank sends enough cash to cover daily checks

Advantages:
Checks take longer to clear -more float
Low amounts of cash tied up for compensating (minimum) balances

A

Financial Management

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14
Q

Treasury Bills: Short term (less than one year) Think: $1 Bill

Treasury Notes: Medium term (less than 10 years- more than 1)

Treasury Bonds: Long term (greater than 10 years) Think: government is in long-term bondage to you; they owe you money

A

Financial Management

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15
Q

Similar to T-Bill- but issued by corporations instead of Government

Greater than 9 Months Maturity

Unsecured

Issued by large firms

A

Financial Management

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16
Q

Advantages: Financing at less than Prime. No compensating balances required.

Disadvantages: Unpredictability of markets. Credit crisis emerges and large insurance/investment companies aren’t lending.

A

Financial Management

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17
Q

The order quantity that minimizes inventory costs.

EOQ : Square Root of (2DO/C)

D : Unit Demand (Annual)
O : Order Cost
C : Cost of Inventory

A

Financial Management

18
Q

The cost of keeping inventory.

A

Financial Management

19
Q

Cost of executing an order and starting product production.

A

Financial Management

20
Q

How low inventory should get before it should be re-ordered.

IOP : Average Daily Demand x Average Lead Time

A

Financial Management

21
Q

Orders inventory so that you get it just in time for when it’s needed

JIT is valuable when Order Cost is low and Cost of Carrying Inventory is high

A

Financial Management

22
Q

Receivables are sold to a financing company where they pay less than the value of the receivables due to a discount related to risk of non-collection

A

Financial Management

23
Q

Buyer saves if paid early

Example: 1/10 Net 30

1% Discount if paid within 10 days

If not- bill is still due in 30 days

A

Financial Management

24
Q

(Discount % x 365) / ((100% - Discount) x (Pay Period - Discount Period))

A

Financial Management

25
Q

A benchmark used for lending only to the best customers

Most customers will be charged Prime + 3%- for example

If the lending institution and the customer are not in the same country- the LIBOR rate is often used

A

Financial Management

26
Q

Interest rate stated on the face of a bond.

A

Financial Management

27
Q

CY : Interest Payment / Bond Price

A

Financial Management

28
Q

PV of Principle + Interest : Bond Price

A

Financial Management

29
Q

No interest payments made

Bond sold at a discount

Interest reflected when Bond matures

A

Financial Management

30
Q

High interest rate

High default risk

A

Financial Management

31
Q

Bonds unsecured by collateral

A

Financial Management

32
Q

Debenture Bonds that will be repaid if any assets are left after liquidation of a company

A

Financial Management

33
Q

Provision in Bond contract allows demand of Bond payment under certain circumstances

A

Financial Management

34
Q

Borrower can pay off debt early

A

Financial Management

35
Q

Lender can demand payment via company stock instead of money

A

Financial Management

36
Q

Borrower deposits regular sums into an account that will eventually pay off the debt

A

Financial Management

37
Q

Common Stock is more expensive to issue than debt.

Why? Investors demand a greater ROI than debtors (bondholders)

A

Financial Management

38
Q

Hold dividend priority over common stock

A

Financial Management

39
Q

A company uses this to determine the true cost of their capital

Example:
Debt costs 5%; 40% of Cap.
Equity costs 12%; 60% of Cap.
(5% x 40%) + (12% x 60%)
WACC : 9.2%
A

Financial Management

40
Q

A stock’s expected performance is based on its beta (risk) compared to that of the stock market.

More risk : more expected return.

A

Financial Management

41
Q

(Interest Expense - Tax Benefit) / Carrying Value of Debt

A

Financial Management

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