Formulas Flashcards
Accrued L + A/P + Current portion of long–term note payable =
Current liabilities
Cash+ A/R + inventory =
“Current Assets
Prepaid assets – not CA”
Avg. Gross Receivable balance =
AVG daily sales x Avg collection period
Gross Margin =
( unit price – unit cost ) x number of units
The debt–to–equity ratio measures the
% of total financing provided by creditors (debt) compared to financing by owners.
The interest coverage ratio measures the
firms ability to make required interest payments. The higher – the greater ability to repay the debt.
The return on Equity reflects the
net income that accrued to owners
If there is no provision for allocating losses –>
the method used to allocate profits will be used
Inventory T/Over ratio
COGS/ AVG Inventory
List major risks associated with the A/R component of the system?
“Credit may be applied to improper accounts
Updates of credit ratings may be untimely
Financial or management reporting may be inaccurate”
EVA % =
“RCOE % – WACC %,
where RCOE = Oper. income / capital,
WACC = Cost of debt + cost of equity”
What costs are relevant in decision making?
only INCREMENTAL (fixed or variable)
Seasonality in data may be removed by calculating a
WEIGHTED AVERAGE of the data for the four seasonal time periods
Treating dividends as a residual part of a financial decision assumes that
earnings should be retained and reinvested as long as profitable projects are available
Interest on long–term debt costs ______ than interest on short–term debt because
“more
of risk associated with longer maturity dates”
The intercept value is where the line crosses the _____ axis.
Y axis
The implicit cost of debt financing is the
increase in the cost of debt and equity as the debt–to–equity ration increases
ADRs are receipts issued by a US bank which represents ownership rights in
a foreign corporation
Cost of asset + increase in WC – tax saved – cash received from sale of old asset =
NET OF INVESTMENT
EBIT=
Total revenue – total Var. costs– total Fixed Costs
At what rate company would be INDIFFERENT to the investment?
“at the IRR
CF * IRR ( or annuity factor)= PV of initial investment”
How do you solve the problem if CL is known and Current Ratio will change from 1.75 to 1.5 to 1?
CA + inc in Inv / CL + inc in Inv. = 1.5
How to calculate conversion costs transferred to second department using WA method and normal spoilage is given?
“1) calc. Equivalent units= completed + spoiled + % completed of end units
2) Cost per Eq. unit = Total conversion costs / Eq. units
3) Conversion costs transferred = Cost per unit x ( Good units + Normal spoilage)”
Leverage refers to the amount of _________ in the firm’s structure
Debt
“FIXED OVERHEAD is a Product cost for ABSORPTION COSTING at the time of _________ and
a PERIOD COST under Variable costing at time of ________”
“SALE
PRODUCTION”
Marginal Propensity to Consume
Change in Spending / Change in Income
Marginal Propensity to Save
Change in Savings / Change in Income
Multiplier Effect
[1 / (1-MPC)] x Chg Spending