Term
| Three categories of profit ratios: |
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Definition
| 1. margin 2. return 3.shareholder earnings ratios |
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Term
| What does Net Profit Margin Percentage tell us? |
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Definition
| % of sales was retained by the time we got to the bottom line of the income statement. |
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Term
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Definition
| a. Leaves out taxes b. tells what percentage of sales is left after COGS and OP EXP. |
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Term
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Definition
| How much is the organization investing in creating future products and services |
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Term
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Definition
| 1. Net Profit Margin % 2. Gross Profit Margin 3.Operating profit Margin 4.Relative R$D 5. |
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Term
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Definition
| 1.Return on Assets 2.Sales to fixed assets 3.Return on Investment 4.Return on Equity |
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Term
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Definition
| what sort of return did we generate for our investment in ASSETS? How well our assets are working for us. |
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Term
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Definition
| How much sales are generated from fixed assets, like planes etc. |
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Term
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Definition
| a. can be calculated in a variety of ways b.shows how well the investments made by the company are doing |
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Term
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Definition
| Was the investment in the organization, in terms of equity worth it? |
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Term
| 2 Shareholder Earnings Ratios |
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Definition
| 1. Earnings per Share 2.Price/Earnings Ratio |
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Term
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Definition
| a.Favorite metric for wall street b. can be manipulated by buying back treasury stock and changing the number of outstanding shares |
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Term
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Definition
| How much are the stockholders paying for the earnings? Used to determine whether a stock is over or under priced. |
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Term
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Definition
| 1. IRR 2. ROI 3.Dollar Value added |
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Term
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Definition
| the rate of return that would cause the present value of all future cash flows to be $0. Gives a sense of long term risk. Can be calculated many different ways. |
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Term
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Definition
| 1.It gets higher or better the cash the project earns. 2.The less you invest in the project, the better IRR will be, because it is a rate of return. The less investment you have to cover with profits, the better. |
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Term
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Definition
| gives us the total dollars generated by a project. |
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Term
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Definition
| 1. Spend it on fixed assets 2.Spend it on capital assets 3..Or let it sit around as cash or investments. |
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Term
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Definition
| indicates how well working capital worked in generating sales. Ideally you'd like to invest very little in working capital in order to make a load of sales. |
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Term
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Definition
| tells you how efficiently working capital was used to generate sales. |
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Term
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Definition
| 1.Do we have the right amount invested in working capital 2. we want 1 to 1. 3. only want numerator large if included raining day cash. |
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Term
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Definition
| a.k.a. ACID TEST. Same as current ratio, minus inventory, making it a better liquidity ratio. |
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Term
| Inventory to working capital |
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Definition
| Does not provide a very valid comparison. Tells us what proportion of working capital is made up by inventory |
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Term
| Days' supply of Inventory |
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Definition
| measures how many days' worth of inventory is sitting around. |
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Term
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Definition
| number of times inventory is turned over in a month, or year. |
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Term
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Definition
| Tells us how long it takes to collect from our customers. |
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Term
| Accounts receivable turnover |
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Definition
| same as Days' Sales Outstanding expressed in number of times turned over in a year. |
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Term
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Definition
| This metric might give us an indication of how unreliable our customers are. |
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Term
| Accounts receivable to Accounts Payable |
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Definition
| Tests liquidity, should = one or less. |
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Term
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Definition
| very important! Tells us the number of days it takes the organization to turn an investment in its products and services into cash. |
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Term
| What causes the difference between net income and cash? |
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Definition
| The accrual method of accounting |
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Term
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Definition
| GOOD- If the numerator is substantially different from the denominator, this might indicate that the organization has a hard time converting its profits into cash. |
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Term
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Definition
| quick ratio less accounts receivable. just your current liquid resources contrasted against current liabilities. |
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Term
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Definition
| the proportion of cash to total working capital, can be a little misleading because the denominator includes both positives |
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Term
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Definition
| How many times was the investment in cash realized in sales? How hard did your cash work for you in generating sales? |
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Term
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Definition
| asks us to determine if the entity has enough cash to meet dividend obligations |
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Term
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Definition
| enough money to to the extra stuff |
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Term
| Dividend payout of cash from operations |
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Definition
| gives us another perspective on dividend obligations and cash. How able is the organization to generate enough cash from operations to pay dividends? |
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Term
| Depreciation Impact Ratio |
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Definition
| helps refine your diagnosis of what might be going amiss in the operating cash index. Since depreciation is a non-cash expense, it reduces net income but not cash! |
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Term
| Depreciation to total fixed assets |
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Definition
| indicates the age of fixed assets. |
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Term
| An advantage of debt financing: |
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Definition
| often cheaper than equity financing because equity investors often expect a higher return. |
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Term
| Why do equity investors require a higher return? |
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Definition
| they are taking a higher risk, and interest on loans is tax-deductable |
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Term
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Definition
| have to answer to the people to whom you sell it, they become owners. |
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Term
| Advantage of Earnings financing |
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Definition
| dont have to answer to lenders or equity holders |
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Term
| Three ways to finance a company: |
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Definition
| 1.Debt 2.Equity 3.Earnings |
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Term
| How many start-up companies are actually stars |
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Definition
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Term
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Definition
| a. contrasts the components of the right side of the balance sheet. b.tells us where the organization gets money to operate. c.Contrasts debt with the combination of stock and retained earnings. |
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Term
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Definition
| a. effected by long sales cycle b.instead of contrasting debt against equity, we contrast it against the total resources we have available to pay off that debt |
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Term
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Definition
| contrasts the amount of cash the organization holds to the debt obligation. Indicates the company's ability to pay off its debt with the cash it holds. |
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Term
| Long-term debt payment ratio |
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Definition
| tells us how much cash we got by issuing long-term debt versus how much cash we had to pay out in our obligation on long-term debt. |
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Term
| % of Cash Sources Required for Long-term Debt |
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Definition
| proportion of cash that is dedicated to paying off debt. |
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Term
| Short-term debt to all debt ratio |
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Definition
| does it prefer to operate on short-term debt-on lines of credit, for example-or on longer obligations |
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Term
| Cash to current maturities of long term debt* |
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Definition
| IMPORTANT-how much a company is obligated to pay on its long-term debt right now versus how much cash it has available. |
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Term
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Definition
| ability to pay basic obligations |
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Term
| Receivables to long-term debt * |
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Definition
| how well accounts receivable can pay off long term debt |
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Term
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Definition
| 1.Debt to equity 2.Debt 3.Cash to long term 4.long-term debt payment 5.%of cash sources required for long-term debt 6.short-term debt to all debt 7.long-term to all debt 8.Cash to current maturities of long-term* 9.Fixed Charge Coverage 10.Receivables to Long-Term debt* |
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Term
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Definition
| 1.Dividend Payout 2.% of Earnings retained 3.External Financing Index |
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Term
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Definition
| contrasts how much cash generated through operations and how much is brought in externally |
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Term
| 2 Capital Investment Ratios |
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Definition
| 1.Reinvestment Ratio 2.Capital Investment Per Dollar of Cash |
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Term
| Capital Investment per Dollar of Cash |
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Definition
| looks at the priority that the organization puts on investing in capital assets |
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