Finance Ch3

How do you standardise a Balance Sheet
compute all accounts as a % of TA
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How do you standardise an income statement
compute all account as a % of Total Sales
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Current Ratio
CA/CL, measures ST Liquidity, high value=high liquidity
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Quick Ratio
CA-Inventory/CL, ST Liquidity, high value=high liquidity
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Cash Ratio
Cash/CL, ST Liquidity, high value=high liquidi
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Total Debt Ratio
(TA-Total Equity)/TA, LT liquidity
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Debt Equity Ratio
Total Debt/Total Equity, LT Liquidity
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Equity Multipler (EM)
TA/TE=1+TD/TE, LT Liquidity
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Times Interest Earned (TIE)
EBIT/Interest, measures how easily interest on debt can be paid
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Cash Coverage
EBITDA/Interest, measures how easily interest on debt can be paid
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Inventory Turnover
Cost of Goods Sold/Inventory, measures how efficiently a firm uses its assets to generate sales
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Days’ sales in Inventory
365/Inventory Turnover
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Receivables Turnover
Sales/Accounts Receivable, measures how fast they can sell the product
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Days’ sales in Receivables
365/Receivables Turnover
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Total Asset Turnover (TAT)
Net Sales/TA, greater than 1 to create value
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Profit Margin
net income/sales
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ROA
Net income/TA
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ROE
Net Income/TE
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EBITDA Margin
EBITDA/Sales
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Market Cap
Share Price x Shares Outstanding, measures Total value of all a company’s shares
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PE Ratio
Price per share / Earnings per share, measures value of company
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Market to Book Value
Market Value per Share/Book Value per share…(Equity/Shares remaining) compares market value of investment to cost
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Enterprise Value
Market Cap + Market Value of Interest bearing Debt - Cash, measures how much it would cost to buy firm and pay off its debts
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EV Multiple
EV / EBITDA, allows for comparison between companies with diff capital structures, taxes, capital spending
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What is the DuPont Identity
ROE=PM x TAT x EM
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What is DuPont Identity made up of
ROE is a function of Operating Efficiency(PM), Asset Use Efficiency(TAT), Financial Leverage(EM)
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DuPont Identity is used to…
evaluate return
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What are pro forma statements influenced by
o Capital Budgeting decisions, Capital Structure Decisions, Dividend policy decisions, NWC decisions
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What is EFN, how is it calculated
Diff between forecast increase in Assets and forecast increase in liability and equity.
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What is the Internal Growth Rate (IGN)
Max growth by using only retained earnings
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What is the Sustainable Growth Rate (SGN)
How much firm can grow by using internal funds and issuing debt to maintain constant debt ratio
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What are the determinants of the growth rates
DuPont Identity and Dividend Policy
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Other cards in this set

Card 2

Front

How do you standardise an income statement

Back

compute all account as a % of Total Sales

Card 3

Front

Current Ratio

Back

Preview of the front of card 3

Card 4

Front

Quick Ratio

Back

Preview of the front of card 4

Card 5

Front

Cash Ratio

Back

Preview of the front of card 5
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