Need to Know Flashcards
How to you calculate GDP expenditure approach?
GDP is includes all final goods and services within our boarders (doesn’t matter who owns the factory).
GDP = G + I + C + E
Where:
- G = Government purchases
- I = Gross private domestic investment
- C = Personal consumption expenditures (households)
- E = Net exports
What is a trough (i.e. bottom)?
- unused productive capacity and an
2. unwillingness to risk new investments
What is nominal GDP?
NOT adjusted for inflation (i.e. changes in the price level)
What is real GDP?
Has been adjusted for inflation
How do you calculate Disposable Income (i.e after-tax income received by households)?
GDP - depreciation = Net Domestic Product (NDP) - indirect business taxes - net foreign factor income = National Income (NI) - soc sec contributions - corp income taxes - undistributed corp profits \+ transfer payments = Personal Income (PI) - personal taxes = Disposal Income (DI)
What are examples of leading economic indictors?
- weekly unemployment claims
- new orders for consumer goods
- average work week
- building permits
- stock prices
- money supply (tight or easy?)
- vendor on-time deliveries
- new orders for capital goods
- long-term vs. short-term interest rate differences
- consumer expectations (happy or conservative?)
What are examples of lagging indictors? changes after economy starts a pattern and confirms where we are moving.
- average duration of unemployment
- corporate profits
- labor cost per unit of output
- average prime rate
- changes in CPI for services
What is GDP exclude?
Excludes:
- 2nd hand sales b/c nothing produced in current yr
- financial transactions (i.e. soc sec, welfare, etc.)
- illegal drugs and tips
How do you calculate the rate of inflation?
(new CIP less old CIP) divided by old CPI = %
If CIP rises from 176.0 to 179.5
= (179.5 - 176.0) = 3.5 / 176.0 = 0.0198 = 1.98%
What is the formula for break even aka cost-volume-profit (CVP)?
Sales
- Variable Costs
- Fixed Costs
= Profit
What is the Rate of Return also called?
Discount Rate
Cost of Capital
What is the Cost-Volume-Profit also called?
Break even
What is the annual cost of credit if the cash discount is not taken?
2/10, net 30 for 360-day year
Pretend $100 invoice = $100 invoice x 2% discount = $2.00 = $100 invoice - $2 discount = $98 = $2 divided by $98 = 2.041% for 20 days (30-10) = 360 days divided by 20 days = 18 days = 18 x 2.041% = 36.738%
What is Cost of Capital also called?
Interest
How do you calculate Economic Order Quantity?
EOQ = Square root of 2AD/K
A = Annual unit demand = 100,000 lbs raw material
D = Cost per order = $35 variable cost only (ignore FC)
K = Cost of carrying one unit per year = Handling costs + Interest
Material cost = $12 per lb
Handling & storage costs = 20% of the per lb cost
Cost of capital = 15%
Cost of carrying one unit per year = Handling + Interest
Handling = 20% x $12 = $2.40
Interest = 15% x $12 = $1.80
= Carrying costs = $2.40 + 1.80 = $4.20
= 2 x 100,000 units x $35 variable costs = 7,000,000
=7,000,000 divided by $4.20 carrying cost = 1,666,666
=square root is 1,291
What percentage represents the firm’s cost of common equity?
The stock selling for $85.
The next annual dividend is expected to be $4.25 expected to grow at a rate of 7%.
The corporate tax rate is 30% (ignore this b/c dividends are not tax deductible)
Cost of common equity aka Rate of Return = (Dividend ÷ Price) + Growth percentage
= ($4.25 dividend ÷ $85 value) + 7% growth = 12%
Delete
Delete
What’s the formula for quick (acid-test) ratio?
quick assets divided by current liabilities
Quick assets include cash, marketable securities, and accounts receivable, but exclude inventory and prepaid expenses.
Quick liabilities include accounts payable and short-term note payable.
What is the required return on an investment?
Risk-free return + premium
risk-free return (return on a totally risk-free investment such as U.S. government bonds) plus any required risk premium associated with the particular investment. Riskier investments require a greater risk premium.
What’s the acid-test ratio?
Aka quick ratio
= Cash + Cash equivalents + Net receivables + Marketable securities
divided by Current liabilities
quick ratio = quick assets divided by current liabilities. Quick assets include cash, marketable securities, and accounts receivable, but exclude inventory and prepaid expenses.
Which inventory management approaches orders at the point where carrying costs equate nearest to restocking costs in order to minimize total inventory cost?
Economic order quantity (EOQ) is the quantity of inventory that should be ordered at one time in order to minimize the associated costs of carrying and ordering inventory, such as purchase-order processing, transportation, and insurance. Carrying costs increase as the size of the order increases. Setup or ordering costs, however, decrease as the size of the production run or order increases.
What is the current ratio?
What is the quick ratio?
Current ratio = Current assets / Current liabilities
= (Cash + Accounts receivable + Trading securities + Inventory) / (Accounts payable + Accrued liabilities)
quick ratio [(Cash + Marketable securities + Net accounts receivable) ÷ Current liabilities]
Return on common equity Formula
preferred x % cumulative = Preferred stock dividend
Net income less preferred stock dividend
(beg bal + end bal) / 2 = Average common stockholders’ equity
Net income / Ave common stock - ROE
Breakeven in units formula
Breakeven plus Desired net income per month
selling less variable costs = Contribution margin
Fixed costs / contribution margin = Breakeven
(Fixed costs + Desired Income) / contribution margin = breakeven units for desired income
Breakeven (step 1) - Breakeven for Desired (step 2) = units
How do you calculate COGS?
How do you calculate Inventory Turnover?
How do you calculate # days sales in inventory?
Sales - Gross Profit = COGS
COGS / Average Inventory = Inventory Turnover
360 days / Inventory Turnover = # days sales in inventory
How do you calculate A/R Turnover?
How do you calculate A/R Collection Period?
Net sales / average accounts receivable = A/R Turnover
365 days / A/R Turnover = A/R Collection Period
