D076 Finance Skills for Managers WGU

D076 Finance Skills for Managers WGU 5.0 (2 reviews) Students also studied Terms in this set (72) Western Governors UniversityD 196 Save (TEST) Finance Skills for Managers - ...56 terms travis_ketcham8 Preview Finance Skills for Managers - D076 58 terms martinatraPreview WGU D076 Finance Skills for Manag...375 terms infinitedrifterPreview Finance 200 term Ram Practice questions for this set Learn1 / 7Study using Learn ratios that measure the rate of return a firm is earning on various measures of investment.Example is gross margin - Gross profit over sales.Also Price over earnings (p/e) Helpful for cost efficiency of a firms profitability.Real ReturnRate of growth in purchasing power of goods and services Choose an answer 1Solvency Ratios2Asset Management Ratios 3Profitability Ratios4Leverage Ratios Don't know?

Holding Period ReturnReturn over the entire period that an investor owns a financial security BetaA measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.standard deviationUsed to measure the total risk of securities annuity duean annuity whose payments occur at the beginning of each period, consecutively Par BondWhen the bond's coupon rate equals the market yield; Bonds are typically issued near par value PiProfitability index. At 1, the PI means a internal return rate equal to the cost of capital IrrInternal rate of return (IRR) is a discount rate at which the net present value (NPV) of an investment is equal to zero.If the IRR is higher than the cost of borrowing to fund the investment, the investment should be profitable. Always shown as percentage.Net Present Value (NPV)A method of ranking investment proposals using the NPV, which is equal to the present value of the project's free cash flows discounted at the cost of capital.Shown as dollar amount.. At $0 it means it will neither add nor subtract value.Inventory TurnoverAn activity ratio found by COGS divided by inventory dividends in arrearsFeature of preferred stock specifying that if a company ignores preferred stock dividends it cannot pay anything to it's common stockholders Agency Problemthe possibility of conflict of interest between the owners and management of a firm Resolved by aligning interests, example giving shares to manangement Operating MarginA profitability ratio found by EBIT profit divided by sales Capital Structurethe mixture of debt and equity maintained by a firm Defensive AssetsCompanies or securities with betas less than 1.Variable Expenditurean expense that you have direct control over and that can change from period to period Price RiskPotential for the decline in the price of a financial security or an asset relative to the market efficient marketa market in which prices fully reflect all the available information about a specific security trend analysisComparing a firms ratio across time

Coupon YieldThe stated interest rate of a bond; also known as coupon rate syndicatea group of intermediaries that is used to oversee the issuance of stocks and/or bonds premium bondA bond whose price is above it's par value Upside valueThe unlimited earnings potential of equity ownership Treasury NotesA note issued by the US government as a financial security with a fixed interest rate and a short maturity between 1 and 10 years; abbreviated T-note.discount bondA bond whose price is below it's par value Fixed Asset Turnover FATAn activity ratio found by sales divided by fixed assets Fixed means property, plant and equipment.Operating income Return on Investment (OIROI) Operating income (EBIT) over total assets.Before any finance or taxes.Activity RatiosA category of ratios that measure how well a company uses its assets to generate sales or cash, showing the firms operational efficiency and profitability.Example: AR ( accts receivable) turnover: credit sales over accounts receivable.If number is 12 that means we collect once per month.Average Collection Period (ACP)the average length of time required to convert the firm's receivables into cash, that is, to collect cash following a sale.Uses the accounts receivable turnover number (7) as denominator.365/7 = so 52 days to collect receivables.coupon rateThe stated interest rate of a bond; also known as coupon yield Market CapitalizationThe current market value of a publicly traded companys total outstanding shares, indicating the size of a company financial riskrisk associated with a monetary outlay; includes the initial cost of the purchase, as well as the costs of using the item or service trend analysisLooking at financial ratios over time. Sometimes 5 years back and 3 forward, which leads to future forecast.Total Asset TurnoverSales/Total Assets How efficiently a firm is using assets to generate sales.

Timing issues (limitation of financial reports)This limitation to financial reports refers to how businesses can exploit timing issues in financial statements to give a misleading impression of the financial position of the business. For example, when an accountant records revenue, they should also record at the same time any expenses that were directly related to that revenue.Seasonal firms (Christmas tree farm) or high growth firms.Accounting IssuesDifferent types of inventory systems lead to different quick ratios - a potential deficit of ratio comparison Quick Ratio(Current Assets - Inventory) / Current Liabilities Sometimes inventory take a long time to to sell. Sometimes called ACID test

• Catagories of Financial ratiosLiquidity, Activity, leverage, profitability, market.

(Liquids and levers promote markets) mnemonic Activity is also called efficiency Current Ratiocurrent assets divided by current liabilities Consider within a year. Higher values (>1) indicate that the assets can cover liabilities Inventory Turnover Ratiocost of goods sold/average inventory Important to understand if firm is selling (turning) inventory per year.Activity Ratiosmeasure the effectiveness of the use of resources from an operational point of view. Analyze inventories, fixed assets, accounts receivable Profitability Ratiosratios that measure the rate of return a firm is earning on various measures of investment. Example is gross margin - Gross profit over sales.Also Price over earnings (p/e) Helpful for cost efficiency of a firms profitability.DuPont AnalysisAn approach to decomposing return on investment, e.g., return on equity, as the product of other financial ratios.All returns based on the firms profitability and efficiency Example of variable expenseMagazine subscription Sustainable Growth Ratethe maximum growth rate a firm can achieve without external equity financing while maintaining a constant debt-equity ratio Capital Budgeting criteriaMetrics and calculation that use NPV , IRR, PI to evaluate investment