Quiz 3 Flashcards
whether banks will typically lend a venture 100% of the value of property put up as collateral
no, always less
sale-and-leaseback
venture sells asset to a financing company to receive cash then financing company leases asset to the venture
2 alt terms for sale-and-leaseback
sale/leaseback
leaseback
4 situations to use sale and leaseback
- venture is facing foreclosure
- you can only borrow at high interest rates due to bad credit
- cash shortfall is projected and you need to conserve cash
- banks wont let you borrow because of bad credit
fixed asset
land, buildings, equipment and other long-term (more than 1 year) assets, are also known as plant assets
foreclosure
lender takes possession of mortgaged property because borrow defaulted
loan covenant/agreement/promissory note
contract between borrower and lender that regulates promises made by each regarding financing
debt service requirement
cash needed to pay interest plus principal in the specified period of time
4 common loan covenants
maintain specified financial ratios
periodic delivery of financial statements to the lender
restrictions on additional borrowing
restrictions on distributions to owners as pay
P&I
principal and interest
5 advantages for the venture of entering into a leaseback, as discussed in class, including 3 that are advantages compared to a bank loan
- provides cash up to 100% financing of asset value
- allows continued use of the asset
- bankadv-potentially cheaper financing than a bank loan (lower interest)
- bankadv-lease payments may be smaller than debt service reqs
- bankadv-usually no loan covenants
2 disadvantages for the venture of entering into a leaseback
the sale portion of a transaction may result in a taxable gain, causes cash outflow
-the venture gives up ownership of the asset
2 disadvantages of giving up ownership of the assets in a leaseback
- no control over the property
- no opportunity to benefit from value appreciation (real estate)
be able to explain which party (the venture, or the leasing/financing co.) is the:
buyer
seller
lessee
lessor
buyer - leasing company
seller - venture
lessee - venture
lessor - leasing company
factoring
selling a ventures A/R to a factor
alt term for factoring
receivables financing
factor
a company that buys A/R at a discount
factor broker
connects factors with businesses seeking to sell their receivables for a commission
factoring with recourse
if a factored account is uncollectible, the venture must buy back that account
factoring without recourse
if a factored account is uncollectible, it is the factors loss usually
2 variables that impact the amount of the discount in factoring
- whether the factoring is with or without recourse
- the creditworthiness of the A/R customers
whether the discount is greater with factoring with recourse, or factoring without recourse
the discount is greater without recourse
whether factors prefer to buy business A/R, or consumer A/R
business
2 advantages of factoring for the venture
provides immediate cash from the sale of A/R
improves cashflow by reducing collection time of A/R
disadvantage for the venture when factoring
commission means more costly than a bank loan
whether the business that factored the accounts, or the factor, is responsible for collecting the accounts
the factor is responsible for collecting
whether the risk of non-collection is borne by the the business that factored the accounts, or the factor, with factoring WITH recourse
factor with recourse means uncollected accounts goes back to business - business holds risk
whether the risk of non-collection is borne by the the business that factored the accounts, or the factor, with factoring WITHOUT recourse
factor without recourse means uncollected accounts are factors problem - factor holds risk
current liabilities + long-term debt equals
total liabilities
basic accounting eqquation
A=L+OE
balance sheet
reports the company’s assets, liabilities and owners’ equity as of a specified date
alt name for balance sheet
statement of financial condition/position
current assets
an asset expected to be converted to cash within one year
non current asset
an asset expected to be converted to cash in greater than one year - has 2 sub categories
current liability
a liability expected to be paid within one year
non current liability
a liability expected to be paid in greater than one year
consolidated financial statement
financial statements of a parent company and its subsidiaries
parent company
a company that owns another
subsidiary
a company owned by another company
sister companies
companies that share a parent company
accounts receivable
amounts due from customers for goods and services the co. has already provided
alt name for allowance of doubtful account
estimated uncollectibles
A/R net Formula
gross A/R - estimate of uncollectibles
which is the total amount owed by customers to the company, gross A/R or A/R net
Gross A/R
which is the amount the company actually expects to collect, gross A/R or A/R net
A/R net
which is included in the company’s total assets, gross A/R or A/R net
A/R net
alt name for fixed asset
PP&E property plant and equipment / plant asset
whether preferred stock is listed before common stock on the balance sheet, or after
before
whether fixed assets are current assets, or non-current assets
non-current
which fixed asset is listed first
Land
which fixed asset does not depreciate
land
which indicates the total cost of the venture’s fixed assets, gross fixed assets or net fixed assets
historical cost/gross
which is included in the venture’s total assets, gross fixed assets or net fixed assets
net fixed assets
whether a fixed asset’s accumulated depreciation increases over time, or decreases
increases
whether a fixed asset’s net book value increases over time, or decreases
decreases
depreciation
spreading historical cost of a fixed asset over the assets estimated useful life
accumulated depreciation
a fixed assets total depreciation from acquisition to the balance sheet date
market value
price a buyer would pay to an unrelated seller
[liabilities]
debt capital
accrued payables
expenses that have been incurred but not yet paid
3 examples of accrued payables
accrued wages/salaries
accrued interest
taxes payable
owners’ equity
indicates the owners’ investment in the business
contributed capital
out of pocket investments made by owners in exchange for a portion of ownership
2 other terms for contributed capital
invested capital
paid-in capital
retained earnings
reinvested profits
another term for retained earnings
owners equity and retained earnings
accumulated earnings and reinvested profits
dividend
a distribution of profits to the owners
whether the book value of a fixed asset is the same as its market value
it is not the same
what goodwill on the balance sheet indicates
indicates the co has acquired other companies
the type of asset that goodwill is
noncurrent - intangible
is par value same as market value
no
who determines if corp will pay dividend
board of directors
role of board of directors
deciding to pay dividends/to protect the interests of the shareholders
formula for ending gross fixed assets
beg gross fixed + historical cost of fixed assets purchased - historical cost of assets sold in period
net book value of a fixed asset
historical cost - accumulated depreciation
amt reported on balance sheet for preferred stock
number of pref shares issued x par value per pref share
amt reported on balance sheet for additional paid in capital preferred
anything contributed above preferred stock par value
amt reported on balance sheet for common stock
number of common shares issued x par value per common share
amt reported on balance sheet for additional paid in capital common
anything contributed above common stock par value
ending retained earnings formula
beg retained earning + net income - dividends
gross fixed assets
historical cost of all fixed assets
par value
the amount shareholders receive at liquidation + divs/participation
formula for total capital contribution
common/pref stock + additional paid in common/pref stock
