Chapter 1 & 2 – Introduction to Corporate Finance, Financialstatements, Cash flow and taxesAgency problem = Conflict of interest between shareholders andmanagement of a firmCapital budgeting=process of planning and managing a firm’sinvestment in long-term assetsCapital structure=mix of debt and equity maintained by a firmWorking capital management=planning and managing firm’scurrent assets and liabilitiesCash flow from assets = Cash flow to creditors + cash flow toshareholdersOCF = EBIT + Depreciation – TaxesNet capital spending = ending fixed assets – beginning fixed assets+ depreciationNWC = Current Assets – Current LiabilitiesChange in NWC = NWCend– NWCbeg= (CAend– CLend) – (CAbeg– CLbeg)Cash flow from assets = Operating cash flow – net capital spending– changes in net working capitalCash flow to creditors = interest paid – net new borrowing =interest paid – (ending long-term debt – beginning long-term debt)Cash flow to stockholders = Dividends – Net new equity raisedCCA (capital cost allowance) = Depreciation for tax purposes(declining balance in accounting)Chapter 3 – Working with Financial StatementsQuick Ratio = Current Assets – Inventory / Current LiabilitiesCash Ratio = Cash + Cash equivalents / Current LiabilitiesNet working capital to total assets = Net working capital / TotalAssetsInterval measure=Current Assets/Average daily operating costsTotal debt ratio= [Total Assets-Total equity] / Total assetsEquity Multiplier = Total Assets / Total EquityDebt/Equity Ratio = Total Debt / Total EquityEquity Multiplier = 1 + Debt/Equity RatioTimes interest earned ratio = EBIT/InterestCash coverage ratio= [EBIT+ Depreciation] / InterestInventory turnover= COGS/InventoryDays’ sales in inventory = 365 days / Inventory turnoverReceivables turnover = Sales = Accounts ReceivableDays’ sales in receivables = 365 days / Receivables turnoverNWC turnover = Sales / NWCFixed asset turnover = Sales / Net fixed assetsTotal asset turnover = Sales / Total assetsProfit Margin = Net Income / Total SalesTotal Asset Turnover = Sales / Total Assets, the Reciprocal is theCapital Intensity RatioROA = Net Income / Total AssetsROA = Profit Margin x Total Asset TurnoverROE = Net Income / Total EquityROE = ROA x Equity multiplier
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