| amount of profit a company would generate if it had no debt and held no financial assets | net operating profit after taxes |
| short-term assets normally used in a company's operating activities | operating current assets |
| short-term investments and normally exluded when calculating operating current assets | nonoperating assets |
| short-term liabilities, arise in the normal course of operations | operating current liabilities |
| working capital acquired with investor-supplied funds | net operating working capital |
| shareholder wealth is maximized by maximizing the difference between the market value of the firm's stock and the amount of equity capital that was supplied by shareholders | market value added |
| focuses on managerial effectiveness in a given year | economic value added |
| assumes that the true economic depreciation of the company's fixed assets exactly equals the depreciation used for accounting and tax purposes | economic value added |
| measures the extent to which the firm has increased shareholder value | economic value added |
| as part of incentive compensation program, it is the measure that is typically used because it shows the value added during a given year | EVA |
| reflects performance over the company's entire life perhaps even including times before the current managers were born | MVA |
| it can be applied to individual divisions or other units of a large corporation | EVA |
| states that earnings accumulated by a corporation are subject to penalty rates | improper accumulation |
| small business taxed as proprietorships or partnerships rather than as corporations | S corporations |
| management of the finances of an organization in order to achieve the financial objectives of the organization | financial management |
| financial management decisions | investment decisions
financing decisions
dividend decisions and risk management |
| control function of the financial manager becomes relevant for funding which has been raised | financial control |
| management of short-term funds and with how funds can be raised over the long term | financial management |
| whether to undertake new projects | decisions internal to the business enterprise |
| whether to carry out a takeover or a merger involving another business | decision involving external parties |
| whether to sell off unprofitable segments of the business | disinvestment decisions |
| making short-term decisions as to how to implement the long-term strategy and involves the setting up of a control system | management accounting |
| fulfilling a legal requirement to report the profits | financial accountant |
| needs to decide on strategies for the raising of finance, for the investment of capital, and for the magement of working capital | financial manager |
| comparing a company's results to that of other businesses in the same sector, as well as evaluating trends in the company's financial condition over time | financial statement analysis |
| used by managers to classify conditions that need attention, by prospective lenders to determine whether the company is creditworthy, and by stockholders to estimate future earnings, dividends, and cash flows | financial analysis |
| reflects the relationship between a company's existing assets and current liabilities, and therefore its ability to pay off debts as they mature | liquidity ratios |
| current assets/current liabilities | current ratio |
| current assets-inventories/current liabilities | quick or acid-test ratio |
| assess how well a company manages its assets | asset management ratio |
| sales/inventories | inventory turnover ratio |
| receivables/average sales per day | days sales outstanding |
| sales/net fixed assets | fixed assets turnover ratio |
| sales/total assets | total assets turnover ratio |
| show how much of a company's funding comes from debt | debt management ratios |
| total liabilities/total assets | debt ratio |
| total liabilities/total assets-total liabilities | debt-to-equity ratio |
| total liabilities/total liabilities + market value of equity | market debt ratio |
| EBIT/interest expense | time-interest-earned ratio |
| EBITDA + Lease Payments/interest + Principal payments + Lease Payments | EBITDA Coverage ratio |
| cumulative effects of liquidity, asset management, and debt management strategies on operating performance | profitability ratios |
| net income available to common stockholders/sales | net profit margin |
| EBIT/sales | operating profit margin |
| sales - cogs/sales | gross profit margin |
| EBIT/total assets | basic earning power ratio |
| net income available to common stockholders/total assets | return on asset |
| net income available to common stockholders/common equity | return on equity |
| compare a company's stock price to its revenue, cash flow, and book value per share providing management insight into what investors think about its past success and future prospects | market value ratios |
| price per share/earnings per share | price/earnings ratio |
| price per share/cash flow per share | price/cash flow ratio |
| common equity/shares outstanding | book value per share |
| market price per share/book value per share | market/book ratio |
| intended to demonstrate how sales profit margins, asset turnover ratios, and debt usage all combine to assess the rate of return on equity | du pont system |
| method of contrasting an organization to a number of other successful businesses | benchmarking |
| form of financial statement analysis that compares historical data over several accounting periods | horizontal analysis |
| ability to compare the financials of two or more related firms side by side | comparability |
| success indicators | profit margins
inventory turnover
return on equity |
| technical analysis methodology that aims to forecast future stock price movements using trend data that has recently been observed | trend analysis |
| three typical time horizons where trend analysis focuses | short
intermediate
long-term |
| general direction in which the market is moving over a given time span | trend |
| form of comparative analysis that involves looking at current patterns in order to forecast future ones | trend analysis |
| when a short-term moving average crosses above a long-term moving average, long positions are taken, likewise | moving average |
| taking long positions when a security's momentum is high and exiting long positions when the security;s momentum is weak, using relative strength index | momentum indicators |
| when a security is trending higher, these tactics include taking long positions and putting a stop-loss below key trendline support levels | trendlines and chart patterns |
| looks at of line item as a percentage of a base number within the present period | vertical analysis |
| to understand the correltion between single items on a balance sheet and the bottom line, expressed in a percentage | vertical analysis |
| typical statistic on an income statement | complete top-line revenue |
| this will include information on a variety of cash low products, such as capital expenses as a percentage of revenue | cash flow analysis |
| concept that money you have now is worth more than the identical sum in the future due to its potential earning capacity | time value of money |
| ineterest on the amount invested/borrowed at a given rate and for a given time | simple interest |
| amount computed by adding the interest and the principal | maturity value |
| when interest earned in the first period will also earn interest in the second period | compound interest |
| amount which you will receive sometime in the future or the amount to which an investment will grow after earning interest | future value |
| sequence of equal payments made at regular intervals | annuity |
| when periodic payments are made at the end of the period | ordinary annnuity |
| sum of all the accumulated value of the set of payments due at the end of the period | future value of the ordinary annuity |
| first payment happens immediately or when payments are made at the beginning of each period | annuity due |
| discounted value of the multiple payments due at the start of the contract, with the first payment due at the end of the period | present value of an ordinary annuity |
| sum of all the discounted value of several payments due at the beginning of the term, with the first payment to be made at the beginning of period | present value of an annuity due |
| considered a form of annuity, differ from the mode of paymend since payments here are considered continuous forever | present value of a perpetuity |
| process of determining the present value of a payment or a stream of payments that is to be received in the future | discounting |
| the company is willing to receive a lesser amount from the bank even though they will pay the whole amount of the face value at the date of maturity | discounting the company's own note |
| endorsing a promissory note of a customer to abank or financing company, the latter advancing the maturity value of the note less a charge called discount | discounting the customer's note |
