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BEC > Ratios/Formulas > Flashcards

Ratios/Formulas Flashcards

1
Q

Capital Budgeting 1

A

Cash Inflow pre-tax - Depreciation on investment = Increase in Tax Income - Tax = Increase in accounting net income Cash inflows before tax - Tax = After tax net cash inflows

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2
Q

Capital Budgeting 2

A

Increase in accounting net income + depreciation on investment = After tax net cash inflows

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3
Q

Payback method

A

Initial Investment / After Tax net cash inflows = Payback Period

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4
Q

Accounting Rate of Return

A

Increase in accounting net income / Investment = Accounting rate of return

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5
Q

Internal Rate of Return

A

Initial Investment / After tax cash inflows = Present value factor

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6
Q

Net Present Value

A

After tax new cash inflows x present value factor for annuity at target rate = Present value of investment - Initial investment = NPV

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7
Q

Inventory conversion period (ICP)

A
  • ICP = Average inventory / Cost of sales per day
  • Average inventory = (Beginning inventory + Ending inventory) / 2
  • Assume 365 days in a year unless told otherwise
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8
Q

Receivables collection period (RCP)

A

RCP = Average receivables / Credit sales per day

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9
Q

Payables deferral period (PDP)

A

PDP = Average payables / Purchases per day

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10
Q

Cash conversion cycle (CCC)

A

CCC = ICP + RCP – PDP

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11
Q

Economic Order Quantity (EOQ)

A 
EOQ = √2AP/S
A = Annual demand in units
P = Cost of placing an order or beginning a production run
S = Cost of carrying one unit in inventory for one period
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12
Q

Reorder point

A

Average daily demand × Average lead time = Reorder point

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13
Q

Safety stock

A

Maximum daily demand × Maximum lead time – Reorder point = Safety stock

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14
Q

Operating leverage

A

% change in operating income / % change in unit volume = Degree of operating leverage

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15
Q

Financial leverage

A

% change in earnings per share / % change in earnings before interest and taxes = Degree
of financial leverage

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16
Q

Debt YTM

A

Yield to maturity × (1 – Effective tax rate)

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17
Q

DEBT 2

A

(Interest expense – Tax deduction for interest) / Carrying value of debt

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18
Q

Capital asset pricing model (CAPM)

A

CAPM = Beta × Excess of normal market return

over risk-free investments + Normal return on risk-free investments

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19
Q

Return on Investment (based on assets)

A

Net income / Total assets

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20
Q

DuPont return on investment (ROI) analysis

A

ROI = Return on sales × Asset turnover

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21
Q

Return on sales

A

Net income / Sales

22
Q

Asset turnover

A

Sales / Total assets

23
Q

Residual income

A

Operating profit – Interest on investment

24
Q

Interest on investment

A

Invested capital × Required rate of return

25
Q

Economic Value Added

A

Net operating profit after taxes (NOPAT) – Cost of financing

26
Q

Cost of financing

A

(Total assets – Current liabilities) × Weighted-average cost of capital

27
Q

WACC

A

% of Debt x Effect Cost of Debt + %Preferred Stock x Effective Cost of PS + % Common Stock x Effective cost of CS

28
Q

Free Cash Flow

A

NOPAT + Depreciation + Amortization – Capital expenditures – Net increase
in working capital

29
Q

Gross Margin

A

Gross profit / Net sales

30
Q

Operating Profit Margin

A

Operating profit / Net sales

31
Q

Return on Assets

A

Net income / Average total assets

32
Q

Average total assets

A

(Beginning total assets + Ending total assets) / 2

33
Q

Return on Equity

A

Net income / Average common stockholders’ equity

34
Q

Common stockholders’ equity

A

Stockholders’ equity – Preferred stock liquidation value

35
Q

Receivable Turnover

A

Net credit sales / Average accounts receivable

36
Q

Average accounts receivable (A/R)

A

(Beginning A/R + Ending A/R) / 2

37
Q

Receivables Collection Period

A

Average accounts receivable / Average credit sales per day

38
Q

Inventory Turnover

A

Cost of goods sold / Average inventory

39
Q

Inventory Conversion Period

A

Average inventory / Average cost of goods sold per day

40
Q

Fixed Asset Turnover

A

Sales / Average net fixed assets

41
Q

Total Asset Turnover

A

Sales / Average total assets

42
Q

Current Ratio

A

Current assets / Current liabilities

43
Q

Quick (or Acid Test) Ratio

A

Quick assets / Current liabilities

44
Q

Quick assets

A

Cash + Marketable securities + Accounts receivable

45
Q

Debt to Total Assets

A

Total liabilities / Total assets

46
Q

Debt to Equity Ratio

A

Total debt / Total equity

47
Q

Times Interest Earned Ratio

A

Earnings before interest and taxes / Interest expense

48
Q

Price/Earnings (PE) Ratio

A

Common stock price per share / Earnings per share

49
Q

Book Value per Share

A

Common stock equity / Common stock shares outstanding

50
Q

Common stock equity

A

Stockholders’ equity – Preferred stock liquidation value

51
Q

Market Capitalization

A

Common stock price per share × Common stock shares outstanding

52
Q

Market/Book Ratio can be calculated in two ways

A
  1. Common stock price per share / Book value per share

2. Market capitalization / Common stock equity

BEC (9 decks)

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