Financial Management Flashcards
Arbitrage pricing model
uses a series of systematic risk factors to develop a value that reflects the multiple dimensions of systematic risk
cash discounts
discounts for early payment of accounts
compensating balance
required minimum level of deposit based on loan agreement
concentration banking
payments from customers are routed to local branch offices rather than firm headquarters. reduces collection time
cost of capital
the weighted-average cost of a firm’s debt and equity financing components
debenture
a bond that is not secured by the pledge of specific property
economic order quanity
an inventory technique that minimizes the sum of inventory ordering and carrying costs
= √ (2 x ordering costs x unit demand) / unit carrying cost
Assumes:
- demand occurs at a constant rate throughout the year and is known
- lead-time on the receipt of orders is constant
- entire quantity ordered is received at one time
- unit costs of the items ordered are constant (no quantity discounts)
- no limitations on the size of the inventory
electronic funds transfer
the movement of funds electronically without the use of a check
factoring
the sale of receivables to a finance company
financial leverage
measures the extent to which the firm uses debt financing
Degree of Financial Leverage = (percent change in EPS) / (percent change in EBIT)
Higher DOL means hire risk (higher standard deviation of returns)
float
the time that elapses relating to mailing, processing and clearing checks
inventory conversion period
the average length of time required to convert materials into finished goods and sell the goods
Just-in-time production
a demand-pull system in which each component of a finished good is produced when needed by the next stage of production
Just-in-time purchasing
a demand-pull inventory system in which raw materials arrive just as they are needed for production. it minimizes inventory holding costs
Lockbox system
a system in which customer payments are sent to a post office box that is maintained by the company’s bank. this reduces collection time and improves controls
mortgage bond
a bond secured with the pledge of specific property
operating leverage
measures the degree to which a firm builds fixed costs into its operations
Degree of Operating Leverage = (percent change in income) / (percent change in unit volume)
payables deferral period
the average length of time between the purchase of materials and labor and the payment of cash for them
precautionary blances
cash available for ermergencies
receivables collection period
the average length of time required to collect accounts receivable
speculative balances
cash available to take advantage of favorable business opportunities
subordinated debenture
a bond with claims subordinated to other general creditors
supply chain
describes the processes involved in a good’s production and distribution
warehousing
inventory financing in which the inventory is held in a public warehouse under the lender’s control
Order Point
daily demand x lead timing in days + safety stock
Days’ sales in accounts receivable
provides an overall measure of the accumulation of receivables
= balance of receivables / sales per day
Cost of not taking a discount
(discount % / 100%-discount%) x (365/total period-discount period)
Eurobond
- always sold in some country other than the one in whose currency the bond issue is denominated
- less regulated than other bonds and the transaction costs are lower
cost of debt
interest payment / funds received
-or-
(Risk Free Rate + Base Points) x 1 - tax rate
CAPM
Capital Asset Pricing Model
Risk Free Rate + (Expected Market Rate - Risk Free Rate)xbeta
Dividend-yield-plus-growth-rate
(net expected dividend / current stock price) + expected growth rate
Bond Yeild
[annual interest payment + (principle-bond price/# of years)] / (.6 x bond price) + (.4 x principle)
