Performance Analysis

Question 1

What is the formula for Working Capital Required (WCR)?

Answer 1

WCR = AR + INV + Other CA - AP - Other CL

OR

Accounts Receivable + Inventory + Other Current Assets - Accounts Payable - Other Current Liabilities

Question 2

What goes on the Invested Capital (Assets) side of the Managerial Balance Sheet?

Answer 2

Cash
WCR
Fixed Assets

Question 3

What goes on the Employed Capital (Liabilities/Equity) side if the Managerial Balance Sheet?

Answer 3

Short Term Debt
Long Term Debt
Shareholder Equity

Question 4

What is the formula for net long term financing (NLF)?

Answer 4

Shareholder Equity + Long Term Debt - Fixed Assets

Question 5

What is the formula for net short term financing (NSF)?

Answer 5

Short Term Debt - Cash

Question 6

What is the formula for Liquidity Ratio?

Answer 6

NLF/WCR

AKA

Net Long-term Financing / Working Capital Required

Question 7

When projecting future sales (for income statement forecasting), what 2 things must you forecast?

Answer 7

Industry total sales

Firm’s Market Share

Question 8

When projecting operating income (for income statement forecasting), what things must you forecast?

Answer 8

Cost of Goods Sold and SGA (as fraction of sales)
R&D Expenditures (as fraction of sales)
Depreciation (as fraction of asset value)

Question 9

When forecasting Cost of Goods Sold and SGA what is a reasonable gut check?

Answer 9

Check the ratio of the forecast compared to comparable firms in the industry.