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MBA > Week 2 > Flashcards

Week 2 Flashcards

1
Q

mathematical formulas in finance

A

= concept of hte time value of money gets to hte heart of every calculation. nb/c the calculations are driven by the fundamental principles

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2
Q

value of cash flow in time

A
  • use formulas to calculate the value of cash flows when either pushing them out in time (calculate a future value) or pulling them back in time (calculate a present value)
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3
Q

source of funds corporations use to fund their operations

A

corporations use other people’s money (from debtors or common stock holders) to fund their operations. those investers deserve to be paid for the use of their money

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4
Q

cost of money

A

raising money costs money

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5
Q

2 general forms of how corporations raise money

A

debt = borrowing money
equity = selling partial ownership in the firm

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6
Q

debt =

A

borrowing money

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7
Q

equity =

A

selling partial ownership in the firm

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8
Q

what is the cost of debt

A

interest

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9
Q

what does interest rte mean to the borrower & lender

A

borrower = interest rate represents cost
lender = interest rate represents income (aka yield/return)

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10
Q

what does interest rate represent to borrowers

A

interest rate represents the cost of debt

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11
Q

what does the interest rate represent to the lender

A

interest rate represents income to the lender. aka yield/return

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12
Q

yield or return

A

interest rate the lender of debt gets for letting someone borrow money

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13
Q

2 costs of equity

A

dividends = quarterly payment of cash
capital gains = increases in teh stock market price

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14
Q

dividends

A

quarterly payments of cash

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15
Q

quarterly payments of cash

A

dividends

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16
Q

capital gains

A

increases in the stock market price

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17
Q

increases in the stock market price

A

capital gains

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18
Q

total yield to equity holders =

A

dividend yield and the capital gains yield

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19
Q

what is the value of an asset with the present value of cash flow

A

value of an asset with the present value of the cash flows the asset is expected to produce

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20
Q

discounting

A

when discounting is done more frequently than annually, that inccreases the discount rate so the present value of hte cash flow decreases

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21
Q

what happens when you increase the discount rate

A

when you increase the discount rate, that decreases the present value of cash flow

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22
Q

why do people save their money

A

so it can earn interest over time
- they are free to consume their income now but can choose to postpone consumption and instead invest their money in order to have more money available in the future
**money has time value b/c investing it will lead to having additional funds available in the fture
**a dollar today is worth more than a dollar due one year from now b/c it can be invested today to be worth more than a dollar one year for now

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23
Q

APR

A

annual percentage rate

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24
Q

deposit $1,000 into an account that pays 5% APR (annual percentage rate) compounded annually, how much money will you have one year from today

A

$1050.
so $1K today is worth $1050 tomorrow

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25
Q

what is income earned in a savings account

A

= income to the account holder
&
expense to the bank

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26
Q

why do account holders deposit their money into banks

A

account holders deposit their money in order to earn interest and have more money available in the future

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27
Q

why do banks pay interest to account hoolders

A

banks pay interest to account holders so they can use their money to invest elsewhere (car/house loans) at a rate of return higher than the interest paid to the account holder
***b/c the bank can earn a higher return b/c they end to make investments that have more RISK than a savings account. so they earn a higher return than the savings account pays

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28
Q

what is interest rate for invested money dependent on

A

interest rate earned on invested money is dependent upon the amount of risk the investor is willing to bear

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29
Q

nominal risk free rate

A

least amount a rational investors should be willing to accept for postponing consumption of their income.
-interest rate paid on an investment that bears no risk other than the risk of the cost of inflation
= pure time value of money. the cost paid for postponing consumption w/o taking any risk other than inflation
**beyond that, the return of the investor earns should increase w/their willingness to bear more risk

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30
Q

calculating the FV

A

future value
- determine the value of current cash flows inteh future

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31
Q

mathematic method for calculating present values

A

discounting

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32
Q

compounding

A

calculating future values based on the cash flow growing larger over time as it continues to earn compound interest

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33
Q

what is discounting

A

calculating present values
-results in cash flow growing smaller the farther back in time the value is calculated

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34
Q

multiplier used to calculate the present value of a single cash flow

A

discounting (calculating present value) results in cash flow growing smaller the further back in time the value is calculated(
-so the multipler to calculate the present value will be less than one (how much less than one is dependent on the interest rate used and number of periodis back in time required)

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35
Q

calculating future versus present values

A

compounding = calculating future values as they groun as they continue to earn cound interest(multiplier is more than one)
discounting = calculating present values growing smaller the farther back in time the present value is calculated (multiplier is less than one)

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36
Q

multipliers used to calculate the future and present values of cash

A

future = compounding = more than one
present = discounting = less than one

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37
Q

how do you calculate the present value of a bond

A

present value of a bond is calculated by removing the required yield on the bond over the life of the bond

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38
Q

how do you calculate the present value of stock

A

by removing the required return on the stock

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39
Q

how do you calculate the present value of a production project

A

by removing the cost of money to all investors (bond holers and shareholders)

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40
Q

how do you calculate the present value of the firm

A

removing the cost of money to all investors (bond holers and shareholders)

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41
Q

what is the purpose of discounting when you are valuing an asset

A

when valuing an asset, the purpose of disocunting is to acount for the return the firm owes to its investors for being able to use their money

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42
Q

what does the discount rate represent when calculating the future cash flows

A

w/future cash flos, the discount rate represents the opportunity cost of hte investment - the yield on the next best investment avalilable

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43
Q

what is a tool that is helpful in time value caulcations

A

time line
-lists cash flows based on when they occur, whether those cash flows are being compounded to calcuate a future value or discounted to calculate a present value

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44
Q

how is compound interest earned

A

both on the principle (initial cash flow) and accurued interst

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45
Q

initial cash flow

A

principle

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46
Q

principle

A

initial cash flow

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47
Q

how do you determine the future value of a series of unequal cash flows

A

sum the future values of hte individual cash flows
** compound each cash flow out to the future period in question. then sum those future values to get the value of the series of cash flowsi n the future

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48
Q

discounting

A

procedure for calculating the present value of cash flow
- determines the economic equivalent today of a cash flow to be received in the future, assuming a given discount rate

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49
Q

coumpounding/discounting & interest

A

compounding = adds interest over time to calculate the future value of the cash flow
discounting= removes interest going back in time to determine the present value of hte cash flow
** discount rate represents the opportunity cost for hte cash flow - the interest rate your would earn/pay if hte cash flow was available today to invest

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50
Q

what does the APR mean when it is quoted to you

A

Annual rate banks/financial firms/businesses that extend credit quote you for the transaction being considered
- when you buy a new car, the dealer will quote you an annual interest rate for financing the purchase
*since car/credit card payments are made monthy, the interest paid on teh car loan/credit card debt is compunded monthly
**each loan, result is that you pay a higher effective annual interest rate

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51
Q

how do you determine the periodic interest rate of APR

A

you must divide the APR by the number of compounding/discounting periods per year to determine the periodic interest rate

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52
Q

what happens when compounding/discounting is done more frequently than annually

A

your time line is no longer inyears. it is in months
** the rate of interest paid/earned increases

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53
Q

AR

A

effective annual rate

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54
Q

what happens to interest paid when the APR

A

when compounding is done more frequently, the actual interest paid exceeds the quoted APR (annual rate)
*more frequent compounding results in a higher value

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55
Q

annuity

A

series of equal cash flows paid at regular intervals for a finite period of time

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56
Q

choices of lottery winners

A

single lump sum
or
series of equal (annunity) payments over 20 yers

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57
Q

2 types of annunities

A

ordinary & annunities due
ordinary annunity: payments come at the end of hte period
annunities due: payments come at the beginnign of hte period

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58
Q

what happens if annunity payments are made at the beginning of the period (annunity due)

A

if annunity payments are made at the beginning of hte period, they will be discounted for one less peroid thant he present value calculation

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59
Q

perpetuity

A

an annunity with no scheduled end date
e.g. preferred stock dividend (fixed in ammount and paid on a scheduled basis w/o end)

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60
Q

annunity w/o scheduled end date

A

perpetuity

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61
Q

amortized loan

A

debt for which payments are calculated to be of equal value over the life of hte loan and which contribute to both the interest owed onthe loan as well as the repayment of hte principle

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62
Q

for amortized loans, when is the principle owed the highest

A

early in the life of hte loan, the principle owed is at its highest sot he earlier payments contribute more to interest than repayment of the principle
- over time, the principal is reduced more and more so later in the life of the loan, the payments contribute more to repayment of hte principle than to interest (e.g. as more principle is repaid, less is owed)
- so the makeup of hte payments is mostly interest at first buyt over time, becomes less interest and more repayment of hte principle
* amount ofht e payments does not change o ver time but the makeup of hte payments (interest versus principle) change sw/each payment

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63
Q

how to think about financial statements of a corporation

A

“roadmap” of how the firm’s managers have been making decisions on behalf of hte firm’s stakeholders
= serves as the basis of a firm’s value
- contains data about how many transactions the firm has been involved in over the period fo time the statement represents (quarterly/annual reports)

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64
Q

how can a firm use ratio analysis

A

ratio analysis offers tools to determine what the firm is doing well and where it needs to improve. helps to give an overall picture of hte firm’s current/future prospects

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65
Q

skill that all corporate managers must be able to do

A

read/understand/analyze
- income statement
- balance sheet

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66
Q

topics about financial theory

A

three principles of finance
three precepts

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67
Q

4 financial statements published by corporations

A

balance sheet
income statement
statement of cash flows
statement of retained earnings

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68
Q

what is a balance sheet

A

snapshot of hte firm’s financial position at a point in time
- shows value of asset accounts
- liabilities & owners equity accounts on a s pecific date

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69
Q

what is it called a balance sheet

A

assets on top//side
liabilities/equity at the bottom/side
MUST EQUAL to balance

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70
Q

what does the assets part of the balance sheet show

A

where the firm is utilizing its capital

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71
Q

what does the liabilities/owners equity part of the balance sheet sow

A

sources of funds being utilized

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72
Q

what accounts for differences in balance sheets on a daily basis

A

inventories bought/sold, receiviables incurred/collected, checks written or cashed, seasonal issues,

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73
Q

when do firms typically end their fiscal year

A

firms generally end their fiscal year during a slow season when monthly sales/inventories are at their lowest

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74
Q

how is the assets side of the balance sheet organized

A

Includes: things the firm owns and utilizes in the production of their product/services
* listed in descended order of liquidity

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75
Q

liquidity

A

ability to turn an asset into cash quickly at a fair market value

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76
Q

more liquid an asset is…

A

liquidity = ability to turn an asset into cash quickly at a fair market value
- the more liquid an asset, the more likely you are to be able to sell it quickly if necessary and therefore, the lower the asset’s risk

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77
Q

2 types of assets found on the balance sheet

A

current assets and fixed asets

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78
Q

current assets

A

expected to be turned over (consumed/replenished) in one year or less
- inventories should be sold off in less than one year

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79
Q

fixed assets

A

expected to be in service for a long time

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80
Q

how are liabilities on the blaance sheet organized

A

listed in the order they need to be paid
** owner’s equity is last bc/ shareholder’s claims represent ownershiop & don’t get paid off

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81
Q

2 reasons why owner’s equity is listed last on the balance sheet

A
  • shareholders claims represent ownership so they are never paid off
  • shareholders have a residual claim so they get paid first
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82
Q

amounts listed on the balance sheet accounts

A

book value

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83
Q

total common equity line on the balance

A

= book value of common equity

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84
Q

how are book values different from market values

A

market values = current determind in the marketplace
book values = historic determined at the point of sale

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85
Q

aka short term investments listed as current assets on the balance sheet

A

aka marketable securities

86
Q

cash equivalents

A

marketable securities that mature very quickly, are high liquid. sometimes included w/the cash

87
Q

what are the cash equivalents listed on the balance sheet

A

checksd received but not yet deposited, checkings acounts, savings accounts, money markety accounts, short term but very liquid investments w/maturities of three months or less (commercial paper/ US T-bills)

88
Q

why does a corporation hold cash

A

cash is held to support operations (machine breaks or a supplier offers a great deal on a part but requires a purchase much larger than your usual order)

89
Q

how does a firm decide how much cash to hold to support operations

A

many firms have a policy to hold cash based on sales (2% of annual sales)

90
Q

how does a firm classify cash

A

“operating account” - cash is held in support of operations and tends to vary w/sales

91
Q

accounts receivable

A

credit sales to customers that has not yet been collected

92
Q

credit sales to customers that has not yet been collected

A

accounts receivable

93
Q

how monitors accounts receivable monitord

A

AR = credit sales to customers that has not yet been collected
* by the firm’s credit department and reported in the “aging report”

94
Q

aging report

A

used by the firm’s credit department
- shows the amount of current and past due store credit
-

95
Q

what kind of account is accounts receivable

A

operating account

96
Q

what do “inventories” represent on the balance sheet

A

amount invested in raw materials, work in process, finished goods avaluable for sale

97
Q

FIFO

A

first in, first out
prioritization of inventory

98
Q

LIFO

A

last in, first out
prioritization of inventories

99
Q

FIFO versus LIFO strategies

A

first in, first out
last in, first out
* FIFO gives higher inventory value/lower cost of goods sold than LIFO on the firm’s financial statement

100
Q

what is important to remember about financial statements of firms when you are comparing them

A

FIFO has a higher inventory value/lower cost of goods sold on the income staement. so inventory method used canhave a large effect onthe firm’s financial statement
* level of inventories is driven by the level of sales. when sales increase, inventories should as well (inventories is an operating account)

101
Q

relationshipo between level of inventory and sales

A

the level of inventory is driven by the level of sales
- when sales increase, inventory should as well
- SO inventories account is an operating acocunt

102
Q

what type of account is an inventories account

A

operating account
when sales increase, inventory should as well

103
Q

examples of a firm’s long-term physical assets

A

buildings, trucks, machines…

104
Q

how are a firm’s long-term physical assets like buildings, trucks, machines… reported

A

as net of depreciation

105
Q

depreciation

A

the spreading of the purchase amount of a long-term asset over their economic life to match the expense of using them to the revenue they generate over time

106
Q

spreading the purchase amount of a long-term asset over their economic life to match the expense of using them to the revenues they generate over time

A

depreciation

107
Q

why does the federal government allow the deduction of depreciation?

A

the federal government allows the deduction of depreciation to permit the firm to be in a position to replenish assets when they expire so that the firm can continue to operate and offer the economy jobs as well as their products/services

108
Q

PP&E

A

plant, property, and equipment

109
Q

what is the value of fixed (long-term) assets

A

based on the purchase price. accumulated depreciation is removed from the gross amount so the net value is the value recorded on the balance sheet
- long-term assets are clearly used forproducing the products or services, their value often does not change in resonse to the change in sales

110
Q

Good Will

A

the amount an acquiring firm pays above market value for the firm it acquires

111
Q

calculate total assets

A

= current assets + long-term assets

112
Q

current liabilities

A

liabilities that the firm is expected to pay within a year
- accounts payable, notes payable, accrued expednses like wages/taxes)

113
Q

accounts payable

A

firm’s credit purchases from their suppliers for things like inventories or supplies
(operating account)

114
Q

what type of account is accounts payable

A

firm’s credit purchases from their suppliers for supplies/inventories
(operating account)

115
Q

accruals

A

accrued expenses included staff wages and taxes
(operating account)

116
Q

what type of account is accrued expenses

A

like staff wages & taxes
operating account

117
Q

notes payable

A

short-term debt instruments that must be repayed in less than one year

118
Q

what type of account is notes payable

A

raising funds through debt is a strategic, not operating choice. so notes payable is NOT an operating account

119
Q

long-term debt

A

represents bonds issued by the firm still in circulatinjg

120
Q

what type of accounts are debt and equity accounts

A

use of debt is a strategic, not operating choice
SO
there are no debt or equity operating accounts

121
Q

what type of account is pension obligations

A

NOT an operating accoutn

122
Q

how are preferred shareholders affected a firm grows

A

the preferred dividend is fixed so if the firm grows, preferred shareholders d not get to share the wealth

123
Q

who gets paid first/ranked first if a corporation goes bankrupt

A

preferred dividends must be paid before common dividends
- in bankrupcy, preferred shareholders rank below debtholders but above common shareholders in their claim against the firm

124
Q

what does common equity include

A

the value of common stock & retained earnings

125
Q

aka common equity

A

net worth
b/c if the firm’s assets could be sold at book value and used to pay off the liabilities (debt and preferred equity), the ramining cash would be long to the common shareholders

126
Q

what type of count is equity

A

the use of debt, preferred equity, and common equity are strategic choices. so these accounts aren’t operating accounts

127
Q

total liabilities & equity

A

current liabilities + long-term debt+ liabilities + preferred equity + comomn equity

128
Q

common stock account

A

reflects funds acquired by selling common shares

129
Q

retained earnings

A

net income that is plowed back into the fiurm (not paid to the shareholders as dividends)

130
Q

EBITDA

A

earnings before interest, taxes, depreciation, and amortization

131
Q

amortization

A

depreciation for intangible assets

132
Q

depreciation for intangible assets

A

amortization

133
Q

why do some think EBITDA a better measure of finanancial strength

A

amortization & depreciation are non-cash expenses so some thing EBITDA is a better measure of financial strength than net infome

134
Q

EBITDA - depreciation & amortization =

A

EBIT = earnings before interest and taxes aka operating earnings

135
Q

operating earnings

A

EBIT

136
Q

EBIT

A

earnings before interest and taxes

137
Q

net income aka

A

net income aka profit/earnings

138
Q

calculate net income

A

aka profit or earnings

EBIT minus interest and taxes
this is what is available to distribut to firm stockholders

139
Q

EPS

A

earnings per share

140
Q

calculate EPS

A

earnings per share
net income available to common shareholders divided by the number of common shares outstanding

141
Q

what changes does analyzing the income statement

A

analyzing the income statement reveals changes in the firm’s revenues and expenses -thus, the changes in the firm’s overall profitability

142
Q

dividends

A

cash payments to the firm’s shareholders
-net income is the shareholder money. the firm is obligated to return it to the shareholders unless it is able to earn a higher return by reinvesting it into the firm’s operations

143
Q

how is retained earrnings used

A

retained earnings may be used to purchase new assets, pay interest/retire debt, buy back common stock, increase inventories, finance accounts receivable, invest in short-term securities, keep as cash

144
Q

3 catagories of activities

A

operating activities
investing activities
financing activities

145
Q

most important item on the cash flow statement

A

total line at the bottom of hte first section (cash flow from operating activities). if that line is positive, the firm is producing cash from its from its operations
* if negative, the firm is burning cash by producing their products and a new source of cash is necessary to keep producing the ir products

146
Q

data found on the statement of retained earnings

A
  • amount of retained earnings at the beginning of the year
  • the amount of net income availabel to common shareholders at the ned of hte year
  • amount paid out as dividends over the year
  • the amount added to retained earnings over the year
  • amount of retained earnings at the end of the year
147
Q

purpose of analyzing financial statements

A

uses data to uncover strengths and weaknesses in the firm’s perfomrance over time

148
Q

what do creditors want to know about firms

A

creditors want to make sure the firm is going to be able to pay back its debt

149
Q

what do shareholders want to know about a firm

A

shareholders want to determine if they should continue to own the stock or sell it

150
Q

what do brokers want to know about a firm

A

brokers use the firm’s financial information to sell the stock to potential shareholders

151
Q

what do firm’s managers want to know about a firm

A

firm managers use a firm’s financial information to see where they need to focus their attention to improve performance

152
Q

5 catagories of financial ratios

A

liquidity
asset management
debt management
profitability
market value ratios

153
Q

liquidity

A

abiulity to turn an asset into cash quickly at a fiari rmarket value

154
Q

what does the inventory turnover ratio point out

A

points out excessive, slow moving inventories

155
Q

problem of inventory that sits on the floor rather than getting shipped out to customers

A

susceptible to damage, pillage, obsolescence
- in teh firm’s best interest to minimize the amount of inventory held to only what is needed to support sales (seasonal

156
Q

FAT

A

fixed asset turnover ratio
measures how effectively the firm’s assets (bhuildings/machines) are being used to generate sales

157
Q

TAT

A

total asset turnover ratio

158
Q

3 implications for use of debt by a firm

A
  1. raising money through debt does not erode the control of hte firm’s current shareholders
  2. use of debt increases the return of return to the firm’s shareholders while also increasing the firm’s risk of bankruptcy
  3. as the proportion of debt use din the balance sheet increases, it becomes more expensive/more difficult for hte firm to borrow
159
Q

calculate debt ratio

A

total liabilities divided by total assets

160
Q

how is the debt management ratio used

A

used to determine the potential bankruptcy risk for the firm based on teh current level of debt and ability to pay for their current interest obligations

161
Q

TIE

A

times interest earned ratio

162
Q

what does TIE measure

A

times interest earned ratio
* measures the firm’s ability to pay its interest obligations from operating earnings
- creditors prefer this # to be far above one so they care very confident that the firm will be able to pay its interest obligations on time and in full

163
Q

gross profit

A

sales less the cost of goods sold

164
Q

COGS

A

cost of goods sold
- all the costs and expenses directly related to the production of goods

165
Q

ROA

A

return on assets

166
Q

what is return on assets

A

ROA
measures the % of total assets that is returned to the shareholders in the form of earnings

167
Q

ROE

A

return on equity
measures the % of common equity thtat is returned to the shareholders in the form of earnigns
*rate of return paid to the firm’s owners

168
Q

P/E ratio

A

price/earnings ratios
*indicates how much the market is willing to pay for each dollar of reported earnings

169
Q

M/B ratio

A

market to book ratio
*comapres the market price of hte stock to the book value per share of hte firm’s stock. calculated as the common equity line on the balance sheet divided by the number of shares outstanding

170
Q

how is cash flow different from earnings

A

cash flow differs from earnings b/c some revenues and expenses are non cash

171
Q

barter

A

no cash changes hands

172
Q

ROIC

A

return on invested capital
mneasures the net return form operations as a % of operating capital

173
Q

WACC

A

weighted average cost of capital

174
Q

MVA

A

market value added
extent to which the stock market recognizes the value added to hte firm via the decisions made by the firm’s managers
- if the market approves of management decisions, the market price of hte stock will rise above its book value creating market value added

175
Q

Du Point equation

A

helps us understand the drivers of returns to the firm’s assets and to its shareholders

176
Q

value of the Du Pont analysis

A

return earned by the firm’s shareholders is a function of 3 different activities
- ability of hte managers to control expenses (reflected in net margin)
- ability to use the firm’s assets to generate sales (reflected in TAT)
- judicuious use of debt in the capital structure (reflected in teh EM)

177
Q

comparision to industry leaders that have performance measures you wish to emulate

A

benchmarking

178
Q

benchmarking

A

comparing your firm’s results to a competitors whose performance you wish to emulate

179
Q

pro forma statement

A

“for the sake of the form”
-method of calculating financial results using certain projections or persumptions

180
Q

importance of business case analysis

A

one of hte most important activities a finance department can undertake in support of a company’s decision-making process
- bringing new product on/off require reliable information like a financial analysis of the rsulting revenue/cost/profit

181
Q

stakeholders

A

people on whom the decision would have substantial impact

182
Q

Q’s in market research

A
  • what leads you to believe the proposed product will generate additional revenue?
  • is there evidence from previous product rollouts?
  • what about external sources of information like trade association datea?
  • how credible is the available evidence?
  • how much will it cost to obtain the data?
183
Q

Q’s regarding promotion and advertising

A

Promotion and advertising: How much must you pay different media to run your advertisements? How much will it cost to produce new brochures and other product literature? Should you purchase mailing lists? What does all this imply for your web presence?

184
Q

specifying the costs

A

Specifying the Costs
To complete an initial quantitative picture, you need to give Excel information about the incremental costs associated with bringing the proposed product to market. In particular, it’s useful to take these costs into account:

Market research: What leads you to believe that the proposed product will generate additional revenue? Is there evidence from previous product rollouts? What about external sources of information, such as trade association data? How credible is the available evidence? How much will it cost to obtain the data?

Distribution channels: What are the costs, such as reseller discounts, late penalties, and warehousing, of getting the product to your customers?

Promotion and advertising: How much must you pay different media to run your advertisements? How much will it cost to produce new brochures and other product literature? Should you purchase mailing lists? What does all this imply for your web presence?

Rollout and implementation: Is it necessary to travel to meet with your distributors or sales force? Should you offer special incentives to those in the distribution channel so that they will focus their efforts on selling this product? Does the distribution channel need any special training to understand the product’s price structure, its market niche, and its competitive strengths and weaknesses? Should you double-compensate when a vertical market intersects a horizontal market? That is, if you employ one sales manager for the petroleum industry and one for the state of Texas, should you compensate both managers when you sell something to an Exxon office in Houston?

Product cross-elasticities or cannibalization: Is the proposed product or pricing likely to enhance or cut into the sales of existing product lines? If so, those lines might gain or lose some revenue. How much?

Objectives for market share and penetration: Will the cost of attaining one more percentage point of market share outweigh the additional revenue? Is the cost of filling the last seat in the plane more than the price of the ticket? More generally, can you estimate the product’s price elasticity?
Technology: Is the technology you need to produce this product in hand, or do you have to buy it? How much will it cost to purchase and maintain it? If you already have the necessary production capacity, what is the opportunity cost of using it? In other words, what is the cost of redirecting the technology to the new product, from its originally intended use?

Systems: Are the required methods and processes in place, or must you develop them? These systems usually include sales support, product tracking, billing and collections, inventory management, and the software needed to manage them.

Implementation plans: Are the plans feasible? Are the timelines reasonable with existing staff, or do you need to do more hiring?

Training: Will your staff or customers need additional training to produce or use the proposed product? If so, should you develop the training in-house or obtain it externally? How much will the training cost? How much will it cost to deliver it? Will you need to send trainers around the country, or can you get by with webinars?

185
Q

WHAT DOES ebitda

A

represents the best estimate of a product’s contribution to a company’s profitability which includes the products revenues and the costs that are directly associated w/creating those revenues

186
Q

discounting

A

estimation of hte present value of future cash flows
*every dollar you invest today will have a different value in the future

187
Q

payback period

A

the length of time between an initial investment and the recovery of hte investment from its ongoing cash flow (length of time to break even on an investment)

188
Q

assets versus liabilities

A

A = what we own versus what we owe

189
Q

examples of assets

A

cash, receivables, inventories, building, equipment

190
Q

what does the cash flow statement quantify

A

cash flow statement quantifies operating m, investing, and financing activities

191
Q

what does the balance sheet quantify

A

balance sheet quantifies assets, liabilities, and net worth

192
Q

oneminuteeconomics.com

A
193
Q

who started IMF and World Bank

A

both are banks started by countries

194
Q

IMF

A

bank that helps countries currently in trouble who can’t get money from other means. lender of last resort you go to when no one else

195
Q

World Bank

A

goal is to eradicate poverty and funds projects to meet these goals

196
Q

austerity measures

A

government policies that aim to reduce public sector debt
-uncontrolled increases in acountry’s public debt tend to increase financial instability within the country and can, if left unchecked, cause a national or even regional recession

197
Q

balance sheet job

A

summary of the financial position of a company at a particular date
- everything they own and ow

198
Q

owner’s equity is…

A

net assets after all obligations have been satisfied

199
Q

calculate income statement

A

net income = revenue - expenses
revenue = assets created via business operations
expenses = assets consumed through business operaitons

200
Q

statement of retained earnings

A

a financial statement that identifies changes in retained earnings from one accounting period to the next

201
Q

statement of cash flows

A

reports the amount of cash collected and paid out by a company for a period of time

202
Q

indicates the company’s ability to generate future income

A

statement of cash flow

203
Q

4 things accounting allows a business to do

A

understand performance
what is working well
what isn’t working well
make strategic decisions

204
Q

IFRS

A

international financial reporting standards

205
Q

GAAP

A

Generally Accepted Accounting Principles
*sets out to standardize the classifications, assumptions, and procedures used in accounting in industries across the US

206
Q

GASB

A

Government Accounting Standards Board

207
Q

what are the 4 principles of GAAP

A

The four basic constraints associated with GAAP include objectivity, materiality, consistency and prudence. Objectivity includes issues such as auditor independence and that information is verifiable.

208
Q

how to think about value in finance

A

you can calculate present (now) value of a sum at the beginning of a time period or calculate the future (later) value of hte sum at the end of hte time period

209
Q

3 factors that play a role in almost all valuation decisions

A

spending
risk
value of currency

210
Q

what type of spending do people prefer

A

present versus future spending
- b/c we are an “instant gratification” society and many are risk adverse

211
Q

how to think about expected monetary value

A

a measure of probabilistic value

212
Q

important about bad decisions made…

A

bad decisions base don emotion rather than logic (listen to rumors)

MBA (3 decks)

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