SU8: Activity Measures

Question 1

Accounts Receivable Turnover

Answer 1

Net Credit Sales / Average AR

Question 2

Days Sales Outstanding

Answer 2

Days in Year / AR Turnover

Question 3

Inventory Turnover

Answer 3

Cogs / Average Inventory

Question 4

Days Sales in Inventory

Answer 4

Days In Year / Inventory Turn

Question 5

Accounts Payable Turnover

Answer 5

Purchases / Average Accounts Payable

Question 6

Days Purchases in Accounts Payable

Answer 6

Days in Year / Accounts Payable Turnover

Question 7

Operating Cycle

Answer 7

Days Sales Outstanding in Receivables + Days Sales In Inventory

Question 8

Cash Cycle

Answer 8

Operating Cycle - Days Purchases in Accounts Payable

Question 9

Working Capital Turnover

Answer 9

Sales / Working Capital

Question 10

Fixed Assets Turnover

Answer 10

Net Sales / Average PPE

Question 11

Total Asset Turnover Ratio

Answer 11

Net Sales / Average Total Assets

Question 12

Usable Funds Calculation

Answer 12

Invoice Amount x (1 - Discount Percent)

Question 13

Annualized Cost of Not Taking a Discount

Answer 13

[Discount / (1 - Discount Percent)] x [Days in Year / (Total Payment Period - Discount Period)]

Question 14

Effective interest Rate

Answer 14

Net Interest Expense / Usable Funds

Question 15

Effective rate on a discounted loan

Answer 15

Stated Rate / (1 - Stated Rate)

Question 16

Discounted Loan - total amount available

Answer 16

Loan Amount = Usable Funds / (1 - Stated Rate)

Question 17

Loan amount with compensating balance

Answer 17

Usable Funds / (1 - Compensating balance Percent)

Question 18

Rate of Loan Amount with Compensating Balance

Answer 18

Stated Rate / (1 - Compensating Balance Percent)

Question 19

Annualized Rate of Commercial Paper

Answer 19

[(Face Value - Net Proceeds) / Net Proceeds] x Number of terms per year

Question 20

What is a bankers acceptance?

Answer 20

A source of short term financing. sort of like a very short term bond.

Question 21

What is a trust receipt

Answer 21

an instrument issued by a borrower that proviced inventory as collateral.

Question 22

chattel mortgage

Answer 22

a loan secured by personal property (movable property such as equipment or livestock)

Question 23

floating lien

Answer 23

a loan secured by property, such as inventory, the composition of which may be constantly changing

Question 24

lease

Answer 24

a long-term, contractual agreement in which the owner of property (the lessor) allows another party (the lessee) the right to use the property for a stated period in exchange for a stated payment

Question 25

after-tax outflows

Answer 25

After-tax outflows consider the effect of interest expense and depreciation expense on cash outflows. These expenses create tax-shield benefits that offset lease, or loan, payments (i.e., cash outflows) in an amount equal to the firm’s tax rate multiplied by the expense

Question 26

net advantage to leasing

Answer 26

difference between the present value of the lease financing option and the present value of the debt financing option, or present value of the cost of owning

Question 27

Convertible Securities

Answer 27

debt or preferred stock securities that contain a provision allowing the holder to convert the securities into some specified number of common shares after a specified time has elapsed. The conversion feature is an enticement to potential investors that allows the corporation to raise capital at a cost lower than a straight new common equity issue

Question 28

Stock Purchase Warrants

Answer 28

a call option on the corporation’s common stock. After a specified time has elapsed, the holder of the warrant can exchange the warrant plus a specified amount of cash for some number of shares of common stock

Question 29

A high sales to working capital ratio could indicate

Answer 29

that a firm is undercapitalized

Question 30

Effective rate of a discounted loan with a compensating balance

Answer 30

Stated Rate / (1 - Stated Rate - Compensating Balance %)

Question 31

Letter of credit

Answer 31

an engagement by a financial institution to pay drafts or other demands for payment for its customer