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Corporate Finance > Week 1 (Chapter 1 & 2) > Flashcards

Week 1 (Chapter 1 & 2) Flashcards

This includes information from the class notes.

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1
Q

Ratio Analysis

A
  • Liquidity
  • Efficiency
  • Profitability
  • Financing
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2
Q

Current Ratio

A

Current Assets / Current Liabilities

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3
Q

Quick Ratio

A

Cash + AR + Marketable Securities / Current Liabilities

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4
Q

Total Asset Turnover

A

Sales / Total Assets

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5
Q

Average Collection

A

Accounts Receivable / Sales x 365

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6
Q

Inventory Days

A

Inventory / COGS x 365

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7
Q

Accounts Payable Days

A

Accounts Payable / COGS x 365

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8
Q

Cash Conversion Cycle

A

AR Days + Inventory Days - Accounts Payable Days

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9
Q

Corporate Finance (definition)

A

The practice of managing the money that flows in and out of businesses

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10
Q

Financial Managers Duties

A
  1. Financing
  2. Financial Management
  3. Capital Budgeting
  4. Risk Management
  5. Corporate Governance
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11
Q

Financing Function

A

Raising capital to support a company’s operations and investment programs

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12
Q

Financial Management Function

A

Managing a firm’s day to day cash flows and determining the optimal holdings of short term assets and developing short and intermediate term financial plans so that the firm can adequately operate

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13
Q

Capital Budgeting Function

A

Selecting the best projects in which to invest the firm’s resources, based on each project’s perceived risk and expected return

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14
Q

Risk Management Function

A

Managing the firm’s exposure to risk in order to maintain the optimum risk-return trade-off and thereform maximize shareholder value

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15
Q

Corporate Governance Function

A

Developing a corporate governance structure capable of ensuring that managers act ethically and in stockholders’ interests

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16
Q

On ownership interest is called _________ and money borrowed from creditors is termed __________.

A

equity, debt

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17
Q

Captial raised by professional investors are ______________.

A

venture capitalists

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18
Q

Primary Market Transaction

A

When a corporation sells securities to investors to raise capital

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19
Q

Secondary Market Transactions

A

Trades between investors, which generate no cash for the firm but makes the securities attractive to other investors which raises the price

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20
Q

Money Market

A

The market for debt issuance maturing in one year or less

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21
Q

Notes

A

Longer term debt instruments maturing in less than 7 years

22
Q

Corporate Bonds

A

Debt instruments with maturities of more than 7 years

23
Q

Hedge

A

The act of offsetting market risks such as interest-rate and currency fluctuations.

24
Q

Securities and Exchange Commission (SEC)

A

Federal agency that oversees the fiar reporting of financial information to investors of public companies

25
Q

Sarbanes-Oxley Act (SOX)

A

Requirements on firms that include: restrictions on board membership, exectuve compensation, relationships with auditors and requirefirms to provide documentation of internal controls that protect investors from fraud

26
Q

Legal forms of business organizations

A
  • Sole Proprietorships
  • Partnerships
  • Corporations
  • Limited Liability Companies (LLC)
27
Q

Five core principles of corporate finance

A
  • Time value of money
  • Trade off between risk and return
  • Diversification
  • Efficient markets
  • No arbitrage
28
Q

(NOPAT) Net Operating Profits After Taxes

A

Earnings Before Interest and Taxes X (1 - Corporate Tax Rate)

29
Q

(OCF) Operating Cash Flow

A

NOPAT + Depreciation

30
Q

(FCF) Free Cash Flow

A

OCF - change in gross fixed assets - (change in current assets - change in accounts payable - change in accruals)

31
Q

Average Collection Period

A
32
Q

Average Daily Purchases

A

Annual Purchases / 365

33
Q

Inventory Turnover Ratio

A

COGS / Inventory

34
Q

Average Age of Inventory

A

365 / (COGS / Inventory)

35
Q

Average Daily Sales

A

Annual Sales / 365

36
Q

Average Payment Period

A

Accounts Payable / Average Daily Purchases

37
Q

Fixed Asset Turnover

A

Sales / Net Fixed Assets

38
Q

Debt Ratio

A

Total Liabilities / Total Assets

39
Q

Assets to Equity Ratio

A

Total Assets / Common Stock Equity

40
Q

Debt to Equity Ratio

A

Long Term Debt / Stockholders Equity

41
Q

Times Interest Earned (TIE)

A

Earnings before interest and taxes / Interest Expense

42
Q

Gross Profit Margin

A

Gross Profit / Sales

43
Q

Net Profit Margin

A

Earnings available for common stockholders / Sales

44
Q

Earnings Per Share

A

Earnings available for common stockholders / Number of shares of common stock outstanding

45
Q

Return on Total Assets

A

Earnings Available for common stockholders / Total Assets

46
Q

Return on Common Equity

A

Earnings available for common stockholders / Common stock equity

47
Q

Return on Asset (ROA)

A

Net profit margin X Total Asset Turnover

or

(Earnings available for common stockholders / Sales) x (Sales / Total Assets)

48
Q

ROE = ROA X A/E

A

(Earnings available for common stockholders / Total Assets) X (Total assets / Common Stock Equity)

or

Earnings available for common stockholders / Common Stock Equity

49
Q

Price per Earnings Ratio

A

Market price per share of common stock / Earnings per share

50
Q

Book value per share

A

Common stock equity / number of shares of common stock outstanding

Corporate Finance (15 decks)

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