D076 Finance Skills for Managers WGU Questions and Answers Already Passed

D076 Finance Skills for Managers WGU Questions and Answers Already Passed Real Return Rate of growth in purchasing power of goods and services Holding Period Return Return over the entire period that an investor owns a financial security Beta A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. standard deviation Used to measure the total risk of securities annuity due an annuity whose payments occur at the beginning of each period, consecutively Par Bond When the bond's coupon rate equals the market yield; Bonds are typically issued near par value Pi Profitability index. At 1, the PI means a internal return rate equal to the cost of capital Irr Internal 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 Turnover An activity ratio found by COGS divided by inventory dividends in arrears Feature of preferred stock specifying that if a company ignores preferred stock dividends it cannot pay anything to it's common stockholders Agency Problem the possibility of conflict of interest between the owners and management of a firm Resolved by aligning interests, example giving shares to manangement Operating Margin A profitability ratio found by EBIT profit divided by sales Capital Structure the mixture of debt and equity maintained by a firm Defensive Assets Companies or securities with betas less than 1. Variable Expenditure an expense that you have direct control over and that can change from period to period Price Risk Potential for the decline in the price of a financial security or an asset relative to the market efficient market a market in which prices fully reflect all the available information about a specific security trend analysis Comparing a firms ratio across time Coupon Yield The stated interest rate of a bond; also known as coupon rate syndicate a group of intermediaries that is used to oversee the issuance of stocks and/or bonds premium bond A bond whose price is above it's par value Upside value The unlimited earnings potential of equity ownership Treasury Notes A 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 bond A bond whose price is below it's par value Fixed Asset Turnover FAT An 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 Ratios A 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.