Finance Review

Improved access to capital Much less simple to maintain Higher tax rates LLC Pros Allows for “Special allocation” the disproportionate splitting of member profits and losses Less Regulation Managing members share the bottom line income Subtracted S can tax the shareholders as partners Only 100 shareholders or fewer Cash Flow (Inflows and Outflows) Statement of cash flows – shows the changes in balance sheet accounts and income Retained Earnings Explains the changes In a company’s retained earnings over time. Breaks down changes in the owners interest in the organization.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

The financial ratios that we covered in class (you don’t need to memorize them but know what they mean and measure) Current Ratio Measures the firm’s ability to meet its short term obligations Current Assets/Current Liabilities Quick Ratio or Acid Test Ratio Current Assets-Inventory/Current Liabilities Inventory Turnover Measures how quickly a firm sells its goods Cost of goods sold/elementary Average collection period Measures the average amount of time that elapses from a sale on credit until the payment becomes useable funds for the firm Accounts Receivable/Average Daily

Sales Average Payment Period Measures their payment performance Accounts Payable/Average Daily Purchases Total Asset Turnover Indicates the efficiency with which a firm uses all its assets to generate sales Sales/ total assets Debt Ratio Measures the proportion of total assets financed by the firms creditors Total liabilities/total assets Debt to Equity Ratio Measure of the firm’s financial leverage.

Long term debt/stockholders equity Gross Profit Margin Measures the percentage of each sales dollar remaining after deducting all costs and expenses other than interest and taxes Operating profit/sales Net Profit Margin expenses including interest, taxes, and preferred stock dividends Earnings available for common stockholders/sales Earnings Per Share Measures the number of dollars earned on behalf of each outstanding share of common stock Earnings available for common stockholders/number of common shares outstanding Return on total assets Measures managements overall effectiveness in using the firm’s assets to generate returns to common stockholders Earnings available for common stockholders/total assets Price/Earnings Ratio

Measures the amount investors are willing to pay for each dollar of the firms earnings Market price per share of common stock/earnings per share Municipal Bonds Issued by US State and local governments. All interest received on these bonds is exempt from federal income tax NYSE New York Stock Exchange Preferred Stock Present Value= preferred dividend/required rate of return Common stock markets vs. dealer markets The biggest difference between the two markets is a technical point about how the trades are executed. That is when a trade occurs in a broker market, the two sides of he transaction are brought together and the trade takes place at that point.

In contrast dealer markets never have the two together Book value, market value, liquidation value (aka break up value) Sum of the parts value of a biblically traded company Systematic risk vs. unsystematic risk Systematic risk is the risk that remains even in a well diversified portfolio -recession for example Unsystematic risk is the risk of an individual stock that disappears when one diversifies their portfolio Calculate return on stocks in both dollar amounts and regenerates $ return= dividends + capital gains/losses Total Percentage return= Total $ Return /$ Initial Investment CAMP: Expected return= risk free rate of return + Beta (Expected Make. Return-Risk free rate of return) Efficient Market Hypothesis NP’= The Preferred capital budgeting technique The sum of the present values of all of a projects cash flows, both inflows and outflows, discounted at a rate consistent with the project’s risk. Also, the preferred method for valuing capital investments AIR: NP, Payback period (know the pros and cons of these three capital budgeting techniques)