Finance 305

• 1. Capital Budget Decision
• 2. Capital Structure
• 3. Working Capital

Earnings before Interest and Taxes

Price per Share/Earnings per Share

Assets less Depreciation

Cash available for distribution to shareholders and creditors

EBIT + Depreciation - Taxes

Change in Net Fixed Assets + Depreciation

• Step 1:
• Current Assets - Current Liabilities= NWC
• Step 2: Find the Change
• Year 2 NWC - Year 2 NWC= Change
• Step 3:
• CFA = OCF - Capex - Change in NWC

the process of planning and managing a firms longterm investments. plant and equipment.major investments usually irreversable. long term project plan.

the mixture of debt and equity maintained by a firm used to finance its operations, financing project, ways to get money long term and short term debt.

a firms short-term assets and liabilities. how the firm manages its everyday financial activities.

is to make decisions that increase the value of the stock or increase the market value of the equity. maximize stock prices or shareholder wealth.

the possibility of conflict of interest between the owners and management of the firm.

someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm.

assets less depreciation

financial statement showing a firms accounting value on a particular date. assets= liabilities + equity

current assets less current liabilities

financial statement summarizing a firms performance over a period of time. rev - exp = income

the total of cash flow to creditors and cash flow to stockholders, consisting of the following; operating cash flow, capital spending, and change in net working capital. "free cash flow"

cash generated from a firms normal business activities. EBIT+Depr-Taxes=OCF

• money spent on fixed assets less money received from the sale of fixed assets. CAPEX
• ending net fixed assets - beg net fixed assets + depr = CAPEX

• investment in current assets
• ca - cl = net working capital
• NWC - NWC = change in NWC

OCF - CAPEX - change in NWC = CFA

• a firms interest payments to creditors less net new borrowing
• interest - net new borrowing(change in long term debt) = CFC

• dividends paid out by a firm less net new equity raised
• dividends - new equity issued(change in common stock or total equity, adjust for retained earnings)= CFS

another name for cash flow from assets, cash that is free to be distributed to creditors and stockholders because it is not needed for working capital or fixed asset investment

the firms ability to pay its bills over the short run without undue stress. focusing in ca and cl

• CR= CA/CL
• measure of short term liquidity, highre the better

• QR= CA - inventory/ CL
• also called the "acid test"

ACP = A/R / (sales/365)

IT = COGS / inventory

DSI = Inventory / (COGS/365)

BEP= EBIT/TA

• EBIT/Sales x Sales/TA
• Operating Profit Margin x Total Asset Turnover

OPM= EBIT/Sales

TAT= Sales/ TA

Sales/ A/R

IT= COGS/Inventory

FAT= Sales/ Net Fixed Assets

the firms long-term ability to meet its obligations measured by long-term solvency ratios

TDR= TA - TE/ TA

TIE= EBIT/ Interest Expense

is a measure of how the stockholders fared during the year

ROE= Net Income/ Total Equity

• Net Profit Margin x Total Asset Turnover x Equity Multiplier
• net income/sales x sales/total assets x total assets/ total equity

• Net Income/Sales
• how much profit a firm gets for ever $1 in sales

• Sales/Total Assets
• how much sales are generated for every $1 in assets

• Total Assets/Total Equity
• financial measure, the lower it is it means less debt

• FV
• the amount an investment is worth after one or more periods

• PV
• the current value of future cash flows discounted at the appropriate discount rate

depositing money and removing the interest when paid but leaving the principle

investing and then leaving it in and earning interest on interest

interest rate

# of years

present value

future value

payment in or taken out

calculating the present value of some future amount