AEM 220 Review Session - AEM 220 Review Session 01/04/2008...

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AEM 220 Review Session  01/04/2008 21:05:00 Accounting  Assets=liabilities + shareholder’s equity  Assets= what you own Liabilities= what you owe Shareholder’s equity= stock+ retained earnings  Accounting is not an exact science  2 Major Forms of accounting  Managerial-used for internal purposes and checks and balances  Financial- used for the public  3 Types of ratios Liquidity ratios- how quickly a firm can meet its short term liabilities  o Current  o Acid test, quick- similar to current ratio but leaves out inventories and  this is an even shorter term measurement!  o Debt to equity  Profitability Ratios o Return on Sales o Return on Equity  o Earnings per share  Activity Ratios- used to measure how efficient a firm is  o Inventory turnover
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o Accounts receivable turnover   Things to remember with ratios o Industry matters!  Income Statement  Revenue less cost of goods sold equals gross profit  Look at net profit and net income Financial Managers Thing about short term and long term goals while maintaing liquidity  Cash Budget  o Firms projected cash inflows and outflows Capital Budget  o Major asset purchaes  Operating Budget o Master budget Sources of funds o Short Term  Trade credit, promissory notes  Family/friends Banks Unsecured  Secured loan 
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Factoring- sell off accounts receivable  Commercial paper  o Long Term  Debt  Term loan Equity  o Debt is cheaper than equity because interest is tax deductible and  equity is harder to raise because it is riskier, debenture bond is a  unsecured bond that comes with more risk  o Retained earnings- profits that are re-invested in the firm, it is not  necessarily cash on hand! Not the best in an emergency  Types of Investments o Traditional  Stocks/bonds (not traded in a public forum)  Investments Strategies  o Valuing Stocks- don’t follow bubbles  Returns  Growth  Risk  Breakeven Point  Contribution margin- know it  Payback Period  Calculated in whole years 
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Net Present Value Very important because if its positive you are going to accept your project if  its negative you’re not but if its on the bubble then its up to management  Higher the discount rate the lower the NPV of the project and the higher NPV  the lower the discount rate Five Forces Analysis  Threat of new entrants Bargaining power of buyers- customers of the company  Threat of substitute products- another product that can compete  Bargaining of power of suppliers- inputs into the company 
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This note was uploaded on 09/24/2008 for the course AEM 2220 taught by Professor Perez,p.d. during the Spring '06 term at Cornell University (Engineering School).

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AEM 220 Review Session - AEM 220 Review Session 01/04/2008...

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