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finance 1-4
| Question | Answer |
|---|---|
| financial management | managing an entity's money, maximize shareholder wealth, maximization of profit |
| agency theory | relationship between owners and managers of a firm |
| An agency theory | identifies and reduces potential conflicts of interest |
| institutional investors | they have a say about how publicly owned companies are managed, they can sway market prices, able to vote larger blocks of shares for election of board of directors |
| a corporation is | owned by shareholders, formed through articles of incorporation, easy divisibility of ownership interests |
| earnings per share | earning available / number of outstanding shares |
| operating income | gross profit - operating expense sales - cogs = gp, gp - de = operating exp |
| price earnings | common stock / eps |
| maximizing shareholder wealth | finance goal focused on increasing the long term value of a firms stock and dividends |
| risk and return is used for | comparing 2 firms in the same industry |
| risk and return go hand in hand | having higher financial leverage = more risk |
| investors and security analyst | use profitability ratios |
| bankers and creditors | use liquidity ratios |
| long term creditors | use debt utilization ratios |
| ratio analysis | evaluates a companies profitability, liquidity, and debt |
| ratio analysis are most useful | when comparing financial health using trend analysis |
| return on equity | increase it through higher net profit margin (increase in sales price, decrease in expenses.) uses assets more efficiently to generate more sales utilizing financial leverage increases the risk to the firm |
| primary sources of capital are | bondholders, proffered stockholders, common stockholders, retained earning, debt capital, and equity capital |
| free cash flows | operating activities - capital expenditures - dividends it is used for special financing activities finds cash a company generates after covering operating activities and capital E |
| current assets are | cash, marketable securities, accounts receivable, inventory, prepaid expense, |
| long term assets are | investments, plant, property, equipment |
| current liabilities are | accounts payable, notes payable, accrued expenses |
| long term liabilities | bonds payable |
| Asset turnover is | how effectively a company uses its assets to generate revenue or sales |
| quick ratio | measures how quick it can pay short term liabilities in the equating you subtract inventory |
| current ration | includes inventory, it is used with fast moving inventory |
| After tax profit margin | revenue - (expenses and taxes) / revenue |
| earnings before taxes | gross profit - general and administrative expenses |
| after tax income | from earning before taxes - taxes = EAT (net income) |
| cash budget | projects a business's cash inflows and outflows ensures that there is enough to cover short obligations like payroll predicts cash shortages |
| having positive capital alongside negative chas flows | you are generating sales BUT not entering your account fast enough to pay short term obligations |
| percentage of sales method | accounts on balance sheet will maintain given % relationship to sales helps to determine funds needed to finance growth |
| required new funds | helps calculate how much financing fo we have in need for? |
| 4 steps to developing pro form income statement | establish future sales projection determine production schedule compute other expenses determine profit by completing |
| the more sales on credit the more need for financing (cash) | it is making you pay today, we have less need for cash |
| finding gross profit margin | sales - cogs = gp gp / sales = gp margin |
| finding profit margin having assets, turnover, return on assets | assets - total asset turnover = sales assets x return on assets = net income net income / sales = profit margin |
| after tax profit margin | ebt (1 -%) / sales |
Created by:
Kenzie_4560