Final exam cheat sheet (5) - Chapter 1 2 Introduction to...

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Chapter 1 & 2 – Introduction to Corporate Finance, Financial statements, Cash flow and taxes Agency problem = Conflict of interest between shareholders and management of a firm Capital budgeting=process of planning and managing a firm’s investment in long-term assets Capital structure=mix of debt and equity maintained by a firm Working capital management=planning and managing firm’s current assets and liabilities Cash flow from assets = Cash flow to creditors + cash flow to shareholders OCF = EBIT + Depreciation – Taxes Net capital spending = ending fixed assets – beginning fixed assets + depreciation NWC = Current Assets – Current Liabilities Change in NWC = NWC end – NWC beg = (CA end – CL end ) – (CA beg – CL beg ) Cash flow from assets = Operating cash flow – net capital spending – changes in net working capital Cash 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 raised CCA (capital cost allowance) = Depreciation for tax purposes (declining balance in accounting) Chapter 3 – Working with Financial Statements Quick Ratio = Current Assets – Inventory / Current Liabilities Cash Ratio = Cash + Cash equivalents / Current Liabilities Net working capital to total assets = Net working capital / Total Assets Interval measure=Current Assets/Average daily operating costs Total debt ratio= [Total Assets-Total equity] / Total assets Equity Multiplier = Total Assets / Total Equity Debt/Equity Ratio = Total Debt / Total Equity Equity Multiplier = 1 + Debt/Equity Ratio Times interest earned ratio = EBIT/Interest Cash coverage ratio= [EBIT+ Depreciation] / Interest Inventory turnover= COGS/Inventory Days’ sales in inventory = 365 days / Inventory turnover Receivables turnover = Sales = Accounts Receivable Days’ sales in receivables = 365 days / Receivables turnover NWC turnover = Sales / NWC Fixed asset turnover = Sales / Net fixed assets Total asset turnover = Sales / Total assets Profit Margin = Net Income / Total Sales Total Asset Turnover = Sales / Total Assets, the Reciprocal is the Capital Intensity Ratio ROA = Net Income / Total Assets ROA = Profit Margin x Total Asset Turnover ROE = Net Income / Total Equity ROE = ROA x Equity multiplier

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