Financial Management Flashcards
What is a capital structure?
An entity’s capital structure of a mix of debt (long and short term) and equity (common and preferred) used to financial operations and growth
What is commercial paper?
An unsecured, ST debt instrument issued by a corporation. Commercial paper matures in 270 days or less and typically matures in 30 days. The proceed must be used to to finance current assets.
What are debentures?
Represents an unsecured obligation of the issuing company. A holder has general creditor status.
What are income bonds?
Income bonds represent securities that pay interest only upon achievement of target income levels.
What are mortgage bonds?
A mortgage is a loan secured by residential or commercial real property. Mortgages are typically pooled together and issued as mortgage bonds
What is leasing?
A contractual agreement in which the owner of an asset, the lessor, allows another party, the lessee, the use the asset in exchange for lease payments.
In order to classify a lease as a financing lease, a lessee must meet one of the 5 criteria.. OWNES
- Ownership transferred at the end of the lease
- Written purchase option that the lessee is reasonably certain to exercise
- Net present value of all lease payments and guaranteed residual value is equal to or substantially exceeds the underlying assets fair value
- Economic life of the underlying asset is primarily encompassed within the terms of the lease
- Specialized asset
If none of these are met, if if the lease is a short term lease(12 months or loss) , it will be classified as an operating lease.
What is the Weighted Average Cost of Capital for?
It is the average cost of debt and equity financing associated with a firms existing assets and operations. It is often used as a hurdle for capital investment decisions. It covers cost of funds employed.
What are 3 common methods to calculating the cost of retained earnings?
- Capital asset pricing model
- Discounted cash flow
- Bond yield plus risk premium
What would be considered the optimal cost of capital?
The ratio of debt to equity that produces the lowest WACC
What is operating leverage?
Operating leverage is the degree to which a company uses fixed operating costs rather than variable costs. Capital intensive industries typically have high operating leverage. Labor-intensive industries generally have low operating leverage.
What is financial level?
The degree to which a company uses debt rather than equity to finance the company
What is net working capital?
The difference between current assets and current liabilities
What is the goal of working capital management?
Shareholder wealth maximization
What are 3 types of inventory?
Raw materials, WIPs and finished goods
How should inventory be valued?
Inventory should be valued at the lower of cost, market value or net realizable value.
The market value of inventory represents the median value of the items…
replacements cost (= to cost to purchase inventory and the valuation date), market ceiling (net selling price less cost to dispose) and market floor (= market ceiling less normal profit)
What is net realizable value?
NRV is equal to the net selling price less costs to complete and dispose. (market ceiling)
What is the economic order inventory model?
The model attempts to reduce the total ordering and carry costs. It can be applied to the management of any exchangeable goods.
What are the components of the EOQ equation?
E = Order size (EOQ) S = Annual Sales in units O = Cost per purchase order C = Annual carrying cost per item
E= square root (2SO/C)
What is the goal of Internal Supply Chain Management (ISCM)?
The goal is to better understand the preferences and the needs and cultivate the needs of the relationship with them. This is a collaborative effort between the buyers and the sellers.
What is the SCOR stand for?
Supply chain operations reference
What is the purpose of SCOR?
A generic model for supply chain analysis. It assists firms in mapping out its true supply chain and then configuring it to best fit the needs of the firm.
What are the 4 key management processes pertaining to SCOR?
Plan
Source
Make
Deliver
