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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
Trading at a premium
rate will be lower than the stated rate
26
Yield to maturity
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
27
zero coupon bond
bond that makes no interest payments at all and only pays the fv on the date of maturity. always sells at a discount
28
Floating rate bond
interest payments is not tied but fluctuates with some general index of interest rates
29
Registered bond
bondholders name is registered with the firm, and interest payments are sent directly to the registered owner
30
Junk bond
pays much higher than normal interest, since it is issued by a firm that has a poor credit rating
31
Common Stock Advantages and Disadvantages
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
32
operating leverage
% 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
33
Financial leverage
% 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
34
horizontal merger
when a firm acquires another in the same line of business
35
vertical merger
when a firm acquires another in the same supply chain
36
conglomerate merger
when a firm acquires another in an unrelated line of business
37
Balanced scorecard
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
The components of a balanced scorecard include:
``` Strategic objectives Performance measures Baseline performance Targets Strategic initiatives ```
39
ROI
net income/total assets
40
Dupont return on investment
return on sales x asset turnover
41
Return on sales
net income/sales
42
Asset turnover
sales/total assets
43
Residual income
operating profit - interest on investment
44
Economic value added (EVA)
net operating profit after taxes (NOPAT)- cost of financing
45
cost of financing
(total assets-current liabilities) x wacc
46
Free cash flow
NOPAT + depreciation + amortization - capital expenditures - net increase in working capital
47
Business Process Management
-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
gross margin
gross profit/ net sales
49
operating profit margin
operating profit/ net sales
50
return on assets
net income/ average total assets
51
return on equity
net income/ average common shareholders equity
52
receivable turnover
net credit sales/ avg. ar
53
inventory turnover
cogs/ avg inventory
54
Inventory conversion period
avg inventory/ avg cogs per day
55
fixed asset turnover
sales/average net fixed assets
56
total asset turnover
sales/ average total assets
57
current ratio
ca/ cl
58
quick ratio
quick assets/ current liab
59
quick assets
cash + marketable securities + ar
60
debt to total assets
total liabilities/ total assets
61
debt to equity ratio
total debt/ total equity
62
times interest earned ratio
earnings before interest and taxes/ interest expense
63
price/earnings ratio
common stock price per share/earnings per share
64
book value per share
common stock equity/ common stock shares outstanding
65
market/book ratio
common stock price per share/bv per share | market capitalization/ common stock equity
66
internal benchmarking
similar operating within the org
67
competitive benchmarking
direct competitors
68
functional benchmarking
industry averages
69
generic benchmarking
overall averages of all business enterprise
70
pareto principle
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
six sigma
99.9997% meet quality standards.
72
kaizen
japanese art of continuous movement; emphasizes identification by all members of small improverments
73
delphi
separate consultations with multiple experts and tabulation of recommendations
74
Prevent costs
prevent product failure use high quality material inspect production process train employees maintain machines
75
Appraisal or detection costs
detect product failure before production is complete inspect samples of finished goods obtain info from customers
76
Internal failure costs
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
external failure costs
defective product sent to customer ``` warranty costs dealing with customer complaints product liability marketing to improve image lost sales ```
78
Effective project management
resources time money scope
79
project initiation
support of manangement project management with authority project charter
80
project planning
define scope identify resources needed schedule tasks identify risks
81
project execution
managing work | directing team
82
project monitoring and control
tracking progress | comparing actual outcomes to predicted outcomes
83
gantt chart
bar chart that illustrates the scheduled start and finish of elements
84
projet evaluation and review technique (pert)
focus on interdependency of activities and time required to complete a project
85
abc analysis
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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