Finance 3040

  1. Cost of Captial
    minimum acceptable rate of return on capital investment
  2. EVA
    Economic Value Added - Profit after deducting all costs, including the cost of capital

    AKA as residual income
  3. Total capitalization
    sum of long-term debt and shareholders' equity
  4. EVA formula
    after tax-operating income - (cost of capital) x total capitalization = EVA

    This is what company would earn if it had no debt and could not take interest as a tax-deductible expense.
  5. Return on Capital (ROC)
    • after-tax operating income
    • total capitalization

    percentage; after-tax operating income as a percentage of long-term capital
  6. Alaynas definition of liquidity
    Principle is not risked. Are able to recoup the principle balance.
  7. EBIT
  8. Net Working Captial
    current assets-current liabilities
  9. DuPont System: ROA
    • Net Income + Interest
    • Assets

    • Sales      x      Net Income + Interest
    • Assets                  sales
    • (asset                       (operating profit
    • turnover)                        margin)
  10. The Dupont System: ROE (return on equity)
    • ROE=Net Income
    •           Equity
Card Set
Finance 3040
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