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Business > Financial Management > Flashcards

Financial Management Flashcards

1
Q

inventory conversion period (icp)

A

average inventory/cost of sales per day

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2
Q

receivables collection period (rcp)

A

average receivables/ credit sales per day

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3
Q

payables deferral period (pdp)

A

average payables/ purchases per day

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4
Q

cash conversion cycle (ccc)

A

ICP+RCP-PDP

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5
Q

speculative balance

A

fund to take advantage of special business opportunities

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6
Q

precautionary balances

A

amounts that may be needed in emergency situations

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7
Q

treasury bills

A

short term obligations by the us with lives under 2 year. These are zero coupon form and pay no formal interes so they trade at a discount at maturity

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8
Q

treasury notes

A

obligations with initial lives between 1 to 10 years. Interest paid semiannually

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9
Q

treasure bonds

A

notes with lives over 10 years

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10
Q

treasury inflation protection securities (TIPS)

A

treasury notes and bonds that pay a fixed rate of interest but with principal adjusted semiannually for inflation

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11
Q

federal agency securities

A

offerings that may or may not be backed by the full faith and credit of the us and don’t trade as actively as treasuries but pay slightly higher rates

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12
Q

Economic order quantity (EOQ)

A

square 2AP/S

A=annual demand in units
P=cost of placing an order or beginning a production run
S=costing of carrying one unit in inventory for one period

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13
Q

Reorder point

A

average daily demand x average lead time

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14
Q

Safety stock

A

maximum daily demand x maximum lead time - reorder point

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15
Q

Just In Time Purchasing

A

Costs Reduced Through:
reduction in inventory quantities
elimination of non value adding operations
most appropriate when order cost low and carrying cost hight

Requires high quality control standards:
efficient system minimizing defective units
corrections made as defects occur
fewer vendors and suppliers

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16
Q

Problems with JIT system

A

difficult to find suppliers able to accommodate
high shipping costs due to smaller orders
potential problems due to delays in deliveries

May use back flush approach:
all manufacturing costs charged to cogs
costs allocated from cogs to inventories at reporting dates

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17
Q

prime rat

A

rate that the lender charges its creditworthy customers

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18
Q

london interbank offered rate (libor)

A

when the borrower and lender are in different countries, the base used will typically be the libor rather than the prime rate

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19
Q

Debt covenants

A

restrictions

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20
Q

debentures

A

unsecured bonds

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21
Q

callable bonds

A

the borrowing firm may force the bondholders to redeem the bonds before their normal maturity

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22
Q

stated rate

A

fixed interest payment calculated form the FV of the bond. AKA coupon rate, face rate or nominal

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23
Q

Current yield

A

find interest payment divided by the current selling price of the bond.

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24
Q

Trading at a discount

A

rate will be higher than the state rate

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25
Q

Trading at a premium

A

rate will be lower than the stated rate

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26
Q

Yield to maturity

A

interest rate at which the pv of cash flows of interest and principal will equal the current selling price of the bonds. AKA effective rate or market rate

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27
Q

zero coupon bond

A

bond that makes no interest payments at all and only pays the fv on the date of maturity. always sells at a discount

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28
Q

Floating rate bond

A

interest payments is not tied but fluctuates with some general index of interest rates

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29
Q

Registered bond

A

bondholders name is registered with the firm, and interest payments are sent directly to the registered owner

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30
Q

Junk bond

A

pays much higher than normal interest, since it is issued by a firm that has a poor credit rating

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31
Q

Common Stock Advantages and Disadvantages

A

Advantages:
has no specific obligation to pay investors
increased equity reduces the risk to lenders and reduces borrowing costs

Disadvantages:
insurance costs are greater than for debt
ownership and control must be share with all shareholders
dividends are not tax deductible
shareholders receive a higher return than lenders

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32
Q

operating leverage

A

% change in operating income/ % change in unit volume

higher fixed costs mean more risk when revenues are below expectations
profit grows rapidly relative to revenue increase due to lower variable costs

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33
Q

Financial leverage

A

% change in earnings per share/ % change in earnings before interest and taxes

higher debt means higher interest and principal obligations for prepayment
Debt financing costs less than equity financing and doesn’t increase with greater performance

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34
Q

horizontal merger

A

when a firm acquires another in the same line of business

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35
Q

vertical merger

A

when a firm acquires another in the same supply chain

36
Q

conglomerate merger

A

when a firm acquires another in an unrelated line of business

37
Q

Balanced scorecard

A

Financial-return on investment and related financial measures

Customer-nonfinancia measures of customer satisfaction and retention

Internal business processes-measures of operating effectiveness and efficiency including financial measures, such as cost variances and non financial measures such as a number of defects in production

Learning and growth- measures of employee satisfaction training, and advancement

38
Q

The components of a balanced scorecard include:

A 
Strategic objectives
Performance measures
Baseline performance
Targets
Strategic initiatives
39
Q

ROI

A

net income/total assets

40
Q

Dupont return on investment

A

return on sales x asset turnover

41
Q

Return on sales

A

net income/sales

42
Q

Asset turnover

A

sales/total assets

43
Q

Residual income

A

operating profit - interest on investment

44
Q

Economic value added (EVA)

A

net operating profit after taxes (NOPAT)- cost of financing

45
Q

cost of financing

A

(total assets-current liabilities) x wacc

46
Q

Free cash flow

A

NOPAT + depreciation + amortization - capital expenditures - net increase in working capital

47
Q

Business Process Management

A

-Design: identify existing processes/possible improvements
-Modeling: what if analyses
-Execution
install new software, test, train implement process
-Monitor with performance stats
-Optimize
use performance statistics to identify bottlenecks
consider strategies to remove bottlenecks
-Other Techniques
reengineer
lean manufacturing
theory of constraints
-Workflow analysis: focus on eliminating non value added activities

48
Q

gross margin

A

gross profit/ net sales

49
Q

operating profit margin

A

operating profit/ net sales

50
Q

return on assets

A

net income/ average total assets

51
Q

return on equity

A

net income/ average common shareholders equity

52
Q

receivable turnover

A

net credit sales/ avg. ar

53
Q

inventory turnover

A

cogs/ avg inventory

54
Q

Inventory conversion period

A

avg inventory/ avg cogs per day

55
Q

fixed asset turnover

A

sales/average net fixed assets

56
Q

total asset turnover

A

sales/ average total assets

57
Q

current ratio

A

ca/ cl

58
Q

quick ratio

A

quick assets/ current liab

59
Q

quick assets

A

cash + marketable securities + ar

60
Q

debt to total assets

A

total liabilities/ total assets

61
Q

debt to equity ratio

A

total debt/ total equity

62
Q

times interest earned ratio

A

earnings before interest and taxes/ interest expense

63
Q

price/earnings ratio

A

common stock price per share/earnings per share

64
Q

book value per share

A

common stock equity/ common stock shares outstanding

65
Q

market/book ratio

A

common stock price per share/bv per share

market capitalization/ common stock equity

66
Q

internal benchmarking

A

similar operating within the org

67
Q

competitive benchmarking

A

direct competitors

68
Q

functional benchmarking

A

industry averages

69
Q

generic benchmarking

A

overall averages of all business enterprise

70
Q

pareto principle

A

an attempt to focus on the small number of significant quality issues, based on an estimate of 80% problems come from only 20% causes

71
Q

six sigma

A

99.9997% meet quality standards.

72
Q

kaizen

A

japanese art of continuous movement; emphasizes identification by all members of small improverments

73
Q

delphi

A

separate consultations with multiple experts and tabulation of recommendations

74
Q

Prevent costs

A

prevent product failure

use high quality material
inspect production process
train employees
maintain machines

75
Q

Appraisal or detection costs

A

detect product failure before production is complete

inspect samples of finished goods
obtain info from customers

76
Q

Internal failure costs

A

detect product failure after production but before shipment to customer

scrap resulting from wasted materials
reworking units to correct defects
reinspection and resetting after rework

77
Q

external failure costs

A

defective product sent to customer

warranty costs
dealing with customer complaints
product liability
marketing to improve image
lost sales
78
Q

Effective project management

A

resources
time
money scope

79
Q

project initiation

A

support of manangement
project management with authority
project charter

80
Q

project planning

A

define scope
identify resources needed
schedule tasks
identify risks

81
Q

project execution

A

managing work

directing team

82
Q

project monitoring and control

A

tracking progress

comparing actual outcomes to predicted outcomes

83
Q

gantt chart

A

bar chart that illustrates the scheduled start and finish of elements

84
Q

projet evaluation and review technique (pert)

A

focus on interdependency of activities and time required to complete a project

85
Q

abc analysis

A

tasks are perceived as being urgent and important
tasks are important but not urgent
tasks are neither urgent nor important

Business (6 decks)

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