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Must Knows Flashcards

1
Q

?

Forumla for computing E.U. in the FIFO Method

A

For the FIFO method, the units started and finished will always be 100%.

Beginning WIP : Physical Units x (100% - % of completion) = E.U.

+

Units started & finished: Physical Units x 100% of completion = E.U.

+

Ending Inventory: Physical Units x % of completion = E.U.

= Total E.U.

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2
Q

what is the formula for Cost of Common Stock ?

A

Next expected dividend + Earn. Growth Rate

(current stock price - float costs)

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3
Q

What costs make up the contribution margin?

A

All Variable Costs:

DL + DM + VOH + VSG&A

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4
Q

What is the formula for Residual Income?

A

Res. Inc. = Net Income - (NBV X Hurdle Rate)

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4
Q

What is the formula for Elasticity of Demand ? How can the formula be altered to give Elasticity of Supply?

A

(change in qty demanded ÷ prechange. qty demanded) ÷ (change in price ÷ prechange price)

to get supply just substitute qty supplied for demanded in the first half of the equation i.e. change in qty supplied ÷ prechange qty supplied

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5
Q

What are the 5 components of the COSO definition of Internal Control?

hint: “CRIME”

A

Control environment

Risk Assessment

Information and comms

Monitoring

Existing control activities

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5
Q

What is Margin of Safety?

A

the excess of sales over breakeven sales

can be expressed as dollars or a percentage

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6
Q

What is the formula for Breakeven Point in Units?

A

Breakeven Point in Units = Total Fixed Costs / Contribution Margin per Unit

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6
Q

Profitability Ratio formula

A

PV of future net cash inflows ÷ Initial Investment = Profitability Index

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6
Q

What is the formula for the Cash Conversion Cycle?

A

Inventory Conversion Period + AR Collection Period - AP Deferral Period

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7
Q

what are the components of the Expenditure Approach to GDP ?

Hint: “PING”

A

Private investment

Individual consumption

Net exports

Govt. purchases

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8
Q

What is the formula for cost of preferred stock?

A

Kps = Dps / Nps

  • where Dps is the annual dividend amount*
  • and*
  • where Nps is the proceeds net of flotation costs*
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10
Q

Compare the basis of what the NPV, IRR, and Payback methods evaluate.

A

NPV evaluates the return in terms of dollars

IRR evaluates the return in terms of percentage

Payback evaluates the time required to recover principal

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11
Q

What is the WIP “flow” equation?

A

Beginning WIP + Units Started - Units Completed = Ending WIP

Note: remember, if its completed its been transferred out

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11
Q

What are the components of ERM?

Hint: think “IS EAR AIM”

A

Internal environment

Setting objectives

Event identification

Assessment of Risk

Respone to risk

Activities (control)

Info & communication

Monitoring

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12
Q

what is the formula for ROA?

A

ROA = Net Income ÷ Avg. Total Assets

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13
Q

How do you find the Breakeven Point in Dollars if you don’t have any info on units?

A
  1. Find CM Ratio = CM ÷ Total Sales
  2. Total Fixed Costs ÷ CM Ratio = Breakeven in dollars
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14
Q

What is the forumla for after-tax cost of debt ?

A

kdx = pretax interest rate × (1 - tax rate)

use the effective interest rate

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15
Q

What is the formula for Inventory Turnover?

A

COGS ÷ Avg. Inventory

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16
Q

What is the formula for AP Turnover?

A

COGS ÷ Avg. A/P

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18
Q

Formula for computing E.U. in the Weighted Avg. method

A

For the weighted average method, the units completed amount will always be 100%

Units Completed : Physical Units x % of completion = E.U.

+

Ending Inventory: Physical Units x % of completion = E.U.

= Total E.U.

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20
Q

What is the COGS formula for a manufacturer?

A

Beginning Finished Goods Inventory

+ COGM

- Ending Finished Goods Inventory

= COGS

20
Q

What is the formula for A/R Collection Period (Days Sales Outstanding) ?

A

365 days ÷ A/R Turnover

22
Q

What is the formula for Cost of Goods Manufactured?

A

Beginning WIP

+ DM consumed

+ DL consumed

+ Applied OH

- Ending WIP

= COGM

23
Q

what is the definition of Economic Profit?

A

It is accounting profit (revenue - cost) less opportunity cost

it is also considered as revenue - explicit costs - implicit costs. Implicit costs is a synoym for Opportunity Costs

25
Q

What is the formula(s) for ROI?

A

ROI = net income ÷ invested capital

or

ROI = Profit Margin × Investment Turnover

where investment turnover = sales ÷ invested capital

26
Q

What is Contribution Margin? What is its basic formula and per unit formula?

A

The contribution margin represents the portion of revenues which are available to cover fixed costs.

Sales revenue - variable costs = contribution margin

Sales Price p/ Unit − Variable Costs p/ Unit = Contribution Margin p/ Unit

27
Q

What is the formula for quantity of Safety Stock?

A

safety stock = (max. lead time - usual lead time) × daily usage

29
Q

A/R Turnover formula

A

Net Credit Sales ÷ Avg. A/R balance

30
Q

What is the formula for the Inventory Conversion period?

A

365 ÷ inventory turnover

31
Q

What is the formula for Times Interest Earned Ratio?

A

(Net income before tax or EBIT + Interest expense) ÷ Interest expense

32
Q

What are the principles that make up the “tone at the top” of the control environment? hint: “PHRASED”

A

Philosophy & operating style of mgmt.

Human Resources

Reporting (financial) competancies

Authority and responsibility

Structure (organizational)

Ethical values and integrity

Directors

33
Q

What is the forumla for APR of quick payment?

A

[360 ÷ ( pay period - discount period)] × [discount ÷ (100 - discount %)]

34
Q

What costs are included in Fixed Costs for the discussion of Breakeven?

A

All fixed costs

FOH + FSG&A

35
Q

In ERM, what is the definition of an “event?”

A

An event is an internal or external occurance that impacts strategy or the acheivement of organizational objectives.

36
Q

What is the formula for Reorder Point?

A

Reorder point = ( Usage per day × Lead time) + Safety Stock

37
Q

What are the 3 views on market efficiency?

A

weak-form efficiency: information about past prices would not be of use in predicting future performance. Its already baked into the market.

semi-strong efficiency: all publicly available information is incorporated in market prices. It’s already baked into the market.

strong-form efficiency: all available information is incorporated in current market prices. Believes it’s all priced in and impossible to outperfom the market / find undiscovered value.

38
Q

Internal control is a process, effected by an entity’s board of directors, management and other personnel, which is designed to provide reasonable assurance regarding the achievement of objectives in one or more categories: “ERC”

A

Effectiveness and efficiency of operations

Reliability of financial information

Compliance with applicable laws and regulations

39
Q

What are the 3 GAAP FMV approaches to valuation ?

remember that FMV only considers exit price

A

Market approach (also called the sales comparison approach) – Uses prices and other relevant infor involving identical assets or liabilities.

Income approach – Uses valuation techniques to determine the time PV/FV of future inflows / earnings from the asset(s).

Cost approach – Uses valuation techniques to determine the amount required to acquire or construct a substitute item (replacement cost or reproduction cost).

40
Q

What are the factors that shift the aggregate demand curve?

Hint: think “TWICE Govt.”

A

Taxes

Wealth

Interest rate

Consumer confidence

Exchange rates

Govt. spending

41
Q

What is the Real interest rate?

A

Nominal interest rate - inflation = real interest rate

42
Q

What are Porter’s 5 Forces that affect the competitive environment?

A
  1. Barriers to Entry
  2. Competitiveness of the market (the most significant force)
  3. Existance of substitute products
  4. Customers bargaining power
  5. Suppliers bargaining power
43
Q

What are the 2 types of competitive advantage?

A
  1. Cost leadership
  2. Product Differentiation
44
Q

What is the quick and dirty formula for average A/R balance ?

A

avg. daily sales X average collection period

45
Q

What is the cost of RE using the Gordon Model?

A

It is the same as for common stock but ignoring flotation costs and underpricing from the calculation

krm = (D1 / PO) + g

where D1 is the next dividend

where PO is the curent market stock price

where g is the expected growth rate of the dividend

46
Q

What is the forumla for Degree of Operating Leverage ?

A

DOL = % change in EBIT / % change in Sales

in the game operation you operate from the top (and ebit is on the top)

47
Q

What is the forumula for Degree of Financial Leverage ?

A

DOL = % change in EPS / % change in EBIT

48
Q

What is the formula for CAPM ?

A

kre = Risk free rate + Risk Premium

where

kre = krf + (bi X PMR)

which means

kre = risk free rate + [beta x (market rate - risk free rate)]

49
Q

What are COBIT’s 7 Business Requirements for Information / 7 information criteria?

A

“ICE RACE”

  1. Integrity - accuracte, complete, valid info
  2. Confidentiality - sensitive info protected f/ unauthorized use
  3. Efficiency - info is delivered with optimal resouce use
  4. Reliability - appropriate info is delivered
  5. Availability - info is available when needed
  6. Compliance - info complies with laws and policies
  7. Effectiveness - info is relevant, consistent,useful
50
Q

What 4 categories make up the Current Account?

A
  1. Balance of trade: payments and receipts from the exchange of goods
  2. Service account: payments and receipts from the exchange of services (e.g., insurance, shipping, tourism)
  3. Net investment income
  4. Net transfers
51
Q

Method for calculating cash flows Net Of Tax

A

cash flow × (1 - tax rate)

+ tax shield × tax rate

= net of tax cash flows

52
Q

What is the shortcut to remember how to set up variances ?

A

SAD: Standard - Actual = Difference

PURE: Price, Usage, Rate, Efficiency

TWICE DADS:

P = DA

U = DS

R = DA

E = DS

53
Q

How to find out the required sales volume to yield a specified profit

A

$ Sales = Fixed Costs + Target Profit

CM Ratio

to get sales in units, just divide the answer by the sales price per unit

BEC (10 decks)

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