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Cards from 10/13 Class
Simplified Financial Analysis and Owner Financing Activities
28
Business
Graduate
10/20/2010

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Cards

Term
Give two ways to calculate ROE
Definition
1) Net Income / Avg Equity
2) Return from Operating Activities + Return from non-operating activities
Term
What two forces go into ROE?
Definition
1) Operations
2) Financing with Debt (non-operating)
Term
What does RNOA stand for?
Definition
Return on Net Operating Asssets
Term
How do you calculate RNOA?
Definition
NOPAT / Avg NOA
Term
How do you calculate Net Operating Assets?
Definition
Total operating assets - Total operating liabilities
Term
How do you calculate the effective tax rate?
Definition
Tax Expense / Pretax Income.
Term
What are the two forces that make up return on non-operating activities?
Definition
1) Financial Leverage
2) Spread
Term
How do you calculate NOPAT?
Definition
Operating Income x (1 - effective tax rate)
Term
What does NOPAT stand for?
Definition
Net Operating Profit After Taxes
Term
How do you calculate gross profit?
Definition
Sales - COGS
Term
How do you calculate gross profit margin?
Definition
gross profit / sales
Term
How do you calculate the current ratio?
Definition
Current Assets / Current Liabilities
Term
How do you calculate Inventory Turnover?
Definition
COGS / Avg Inventory
Term
How do you calculate Account Payable Turnover
Definition
COGS / Avg Account Payable
Term
How do you calculate Account Receivable Turnover?
Definition
Sales / Avg Account Receivable
Term
What is spread with respects to non-operating activities
Definition
The difference between how much a company can make on a borrowed dollar versus what the creditor loaned the dollar for.
Term
What is leverage with respect to non-operating activities
Definition
The notion you can take advantage of a spread by borrowing more money.
Term
What is NOPM and NOAT and how are they related
Definition
NOPM = Net Operating Profit Margin
NOAT = Net Operating Asset Turnover
There is a tradeoff between the two and multiplied together they give you RNOA
Term
How might a company reduce operating expenses at the expense of reducing long term performance?
Definition
By reducing things like advertising and R&D.
Term
How do you figure out how many outstanding shares of common stock are available for a given year?
Definition
# Issued shares - # Treasury shares
Term
Give reasons a company might buy back their stock
Definition
1) They feel stock is undervalued
2) To protect a takeover
3) To counter effect of stocks issued to employees under stock purchase plan
4) To return excess cash to investors as an implied dividend.
Term
Why would the number of issued common shares remain constant while their value increases?
Definition
This happens during a series of buy-backs and resales.
Term
What are the two types of stock dividends and what are their thresholds
Definition
1) Small stock dividend (less than 20%)
2) Large stock dividend (more than 20%)
Term
Assuming 1,000,000 outstanding $5 par common shares, how much does retained earnings go down if a 15% small stock dividend is issued when current price is $30.
Definition
30 x .15 x 1,000,000 = 4,500,000
Term
Assuming 1,000,000 outstanding $5 par common shares, how much does common stock go up if a 15% small stock dividend is issued when current price is $30.
Definition
5 x .15 x 1,000,000 = 750,000
Term
What pieces of data do you need to build a statement of stockholder's equity?
Definition
1) Prior period ending contributed capital
2) Retained Earnings
3) Cash Dividends
4) Net Income
Term
What is the basic effect of converting a bond into common stock?
Definition
You reclassify the original amount of the bond into common stock
Term
If you have $1,000 convertible bonds converted into 20 shares of $10 par common stock what's the effect.
Definition
1) Reduce bond payable $1,000
2) Add common stock of 200 (20 share * $10 par)
3) Remaining $800 is added as additional paid-in capital
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