BUSI 408 Flashcards and Calculations Questions & Answers
3 assets to consider when pulling OFC, capital spending, and change in NWC
cashflow data
All else held constant, the future interest is changed to simple interest from compound interest.
value of a lump-sum investment
will decrease if the:
Amortization The process by which loans are paid off
Annuities A constant stream of cash flows with a fixed maturity
Annuity A stream of cashflows
Same as ordinary annuity, but cash flows come at the beginning of
Annuity due
the period.
Assets must equal... liabilities + stockholders equity
- We care about cash flows - not accounting earnings
- We care about incremental cash flows
- We care about opportunity costs
Assumptions about incremental - We care about side effects of sales like cannibalism and erosion
cash flows - We care about taxes: We want incremental after-tax cashflows
- We care about Inflation: Some things are affected
- We DO NOT care about things that don't matter; sunk costs,
allocations, corporate overhead
Average tax rate The percentage of income that goes into taxes
a snapshot of a firm, showing its accounting value on a particular
The balance sheet shows...
date
Basic Valuation Equation
Generally, not what the asset is worth as they use historical cost to
Book value
account for assets
Calculating the present value of a discounting cash flow valuation.
future cash flow to determine its
worth today is commonly called:
Calculation #1: Return on Equity, Net income/Total equity
ROE
Calculation #2: Du Pont Formula Profit margin x Total asset turnover x equity multiplier
Calculation: Accounting Rate of Average net cashflows/Average investment
return
Calculation: After-tax salvage (Salvage value - book value) = Gain/loss,
value Salvage value - (tax rate*Gain/loss)
, BUSI 408 Flashcards and Calculations Questions & Answers
Calculation: Annuity payments
Calculation: APR n*((EAR + 1)^(1/n)-1)
Calculation: Average tax Tax bill/taxable income
Calculation: Book value Cost - accumulated depreciation
Calculation: Book value per share Total equity/Number of shares outstanding
Calculation: Capital spending Ending net fixed assets - Beginning net fixed assets + depreciation
(CAPEX)
Calculation: Cash coverage ratio (EBIT + Depreciation + Amortization)/Interest expense
Calculation: Cash flow from OCF - Net capital spending - Change in NWC
assets
Calculation: Cash flow to Interest paid - change in long-term debt
creditors
Calculation: cash flow to Dividends paid - change in common stock
stockholders
Calculation: Cash ratio Cash/Current liabilities
Calculation: Change in net Ending NWC - Beginning NWC
working capital
Calculation: Change to retained Net income - Dividends
earnings
Calculation: common-size All accounts/total assets
balance sheet
Calculation: common-size All line items/sales
income statement
Calculation: Compounding
interest future value
Calculation: current ratio Current assets/current liabilities
Calculation: Days' sales in 365/Inventory turnover
inventory/payables
Calculation: debt/Equity ratio Total debt/total equity
Calculation: Depreciation Sales - Costs - EBIT
expense
Calculation: Depreciation tax Depreciation expense * Tax rate
shield
Calculation: Dividend payout Dividends/Net income
ratio
Calculation: Dividend per share Total dividends/total shares outstanding
3 assets to consider when pulling OFC, capital spending, and change in NWC
cashflow data
All else held constant, the future interest is changed to simple interest from compound interest.
value of a lump-sum investment
will decrease if the:
Amortization The process by which loans are paid off
Annuities A constant stream of cash flows with a fixed maturity
Annuity A stream of cashflows
Same as ordinary annuity, but cash flows come at the beginning of
Annuity due
the period.
Assets must equal... liabilities + stockholders equity
- We care about cash flows - not accounting earnings
- We care about incremental cash flows
- We care about opportunity costs
Assumptions about incremental - We care about side effects of sales like cannibalism and erosion
cash flows - We care about taxes: We want incremental after-tax cashflows
- We care about Inflation: Some things are affected
- We DO NOT care about things that don't matter; sunk costs,
allocations, corporate overhead
Average tax rate The percentage of income that goes into taxes
a snapshot of a firm, showing its accounting value on a particular
The balance sheet shows...
date
Basic Valuation Equation
Generally, not what the asset is worth as they use historical cost to
Book value
account for assets
Calculating the present value of a discounting cash flow valuation.
future cash flow to determine its
worth today is commonly called:
Calculation #1: Return on Equity, Net income/Total equity
ROE
Calculation #2: Du Pont Formula Profit margin x Total asset turnover x equity multiplier
Calculation: Accounting Rate of Average net cashflows/Average investment
return
Calculation: After-tax salvage (Salvage value - book value) = Gain/loss,
value Salvage value - (tax rate*Gain/loss)
, BUSI 408 Flashcards and Calculations Questions & Answers
Calculation: Annuity payments
Calculation: APR n*((EAR + 1)^(1/n)-1)
Calculation: Average tax Tax bill/taxable income
Calculation: Book value Cost - accumulated depreciation
Calculation: Book value per share Total equity/Number of shares outstanding
Calculation: Capital spending Ending net fixed assets - Beginning net fixed assets + depreciation
(CAPEX)
Calculation: Cash coverage ratio (EBIT + Depreciation + Amortization)/Interest expense
Calculation: Cash flow from OCF - Net capital spending - Change in NWC
assets
Calculation: Cash flow to Interest paid - change in long-term debt
creditors
Calculation: cash flow to Dividends paid - change in common stock
stockholders
Calculation: Cash ratio Cash/Current liabilities
Calculation: Change in net Ending NWC - Beginning NWC
working capital
Calculation: Change to retained Net income - Dividends
earnings
Calculation: common-size All accounts/total assets
balance sheet
Calculation: common-size All line items/sales
income statement
Calculation: Compounding
interest future value
Calculation: current ratio Current assets/current liabilities
Calculation: Days' sales in 365/Inventory turnover
inventory/payables
Calculation: debt/Equity ratio Total debt/total equity
Calculation: Depreciation Sales - Costs - EBIT
expense
Calculation: Depreciation tax Depreciation expense * Tax rate
shield
Calculation: Dividend payout Dividends/Net income
ratio
Calculation: Dividend per share Total dividends/total shares outstanding
