A business owned and run by one person.

• Straightforward to set up.
• No separation between the firm and the owner.
• The owner has unlimited personal libaility for any of the firm's debts.
• The life of a sole proprietorship is limited to the life of the owner.

A business owned and run by more than one owner.

• All partners are liable for the firm's debt. Any patner to repay all the firm's outstanding debts.
• The partnership ends in the event of the death or withdrawal of any single partner.
• Partners can avoid liquidation if the partnership agreement provides for alternatives such as a buyout of a deceased or withdrawn partner.

A partnership with two kinds of onwers, general partners and limited partners.

General partners are personally liable for the firm's debt obligations.

When an investor's liability is limited to her investment.

No management authority and cannot make managerial decisions.

A limited partnership without a general partner.

That is, all the owners have limited liability, but unlike limited partners, they can also run the business.

A legally defined, artificial being, seperate from its owners.

• It can enter into contracts, acquire assets, incur oblications, and it enjoys protection under the US Constitution against seizure of its property.

Those corporations that elect subchapter S tax treatment and are allowed an exemption from double taxation.

• Individuals must be US citizens
• There can be no more than 100 of them

Corporations that have no restrictions on who owns their shares or the number of shareholders; threefoe, they cannot qualify for subchapter S treatment and are subject to direct taxation.

• Make investment decisions.
• Make financing decisions.
• Manage cash flow from operating activities.

The price at which a market maker or specialist is willing to buy a security.

Price we get if we are selling.

The price at which a market maker or specialist is willing to sell a security.

The price we get if we are buying.

• 10Q form on a quarterly basis
• 10K form on an annual basis
• Prepared using GAAP
• Only 10K audited

A list of a firm's assets and liabilities that provides a snapshot of the firm's financial position at a given point in time.

• Liquidity determines which order assets are listed.

An accounting measure of a firm's net worth athat represents the difference between the firm's assets and its liabilities.

Assets = Liabilities + Stockholders Equity

• If a company has too much cash it needs to give it back to shareholders, buy back shares, issue dividends
• If they have too little cash they may need to raise it or go bankrupt.

Cash or assets that could be converted into cash within one year.

• Marketable securities (short term, low-risk investments)
• Accounts receivable (amounts owed to a firm by customers who have pruchased goods or services on credit.
• Inventories (A firm's raw materials as well as its work-in-progress and finished goods)

Price - Depreciation = Net Property, Plant, Equipment

Book Value = Acquisition Costs - Depreciation

• Common stock/paid in capital
• Retained Earnings

Liabilities that will be satisfied within one year.

• Accounts Payable (the amonts owed to creditors for products or services pruchased with credit
• Notes Payable/Short-term Debt (Loans that must be repaid in the next year)
• Accrual items, such as salary or taxes

The difference between a firm's current assets and current liabilities that represents the capital avialable in the short term to run the business.

Net Working Capital = Current Assets - Current Liabilities

The total market value of equity; equals the market price per share times the number of shares

MARKET-TO-BOOK RATIO

(PRICE-TO-BOOK)

Market-to-Book Ratio = Market Value of Equity

                                 Book Value of Equity

• Indicates the value of the firm's assets when put to use exceeds their historical cost (or liquidation value)
• Low Ratio = Value Stocks
• High Ratio = Growth Stocks

A measure of the extent to which a firm relies on debt as a source of financing.

It is the ratio of a firm's total amount of short and long-term debt (including current maturities) to the value of its equity, which may be caluclated basked on market or book values.

Debt-Equity Ratio = Total Debt

                            Total Equity

The total market value of a firm's equity and debt, less the value of its cash and marketable securities. It measures the value of the firm's underlying business.

Enterprise Value = Market Value of Equity + Debt - Cash

The ratio of current assets to current liabilities.

Assesses whether or not the firm has enough working capital to meet is short-term needs.

Current Ratio = Current Assets

                       Current Liabilities

The ratio of current assets other than inventory to current liabilities.

Quick Ratio = Current Assets - Inventory

                 Current Liabilities

Cash + Operating Assets = Liabilities + Equity

Operating Assets = Liability + Equity - Cash

Tax Rate = Tax Expense

                Pre-Tax Income

A firm's net income divided by the total number of shares outstanding.

EPS = Net Income

          Shares Outstanding

The ratio of gross profit to revenues (sales), it reflects the ability of the company to sell a product for more than the sum of the direct costs of making it.

Gross Margin = Gross Profit

                      Sales

The ratio of operating income to revenues, it reveals how much a company has earned from each dollar of sales before intrest and taxes are deducted.

Operating Margin = Operating Income

                          Sales

The ratio of net income to revenues, it shows the fraction of each dollar in revenues that is available to equity holders after the firm pays its expenses, plus interest and taxes.

Net Profit Margin = Net Income

                          Sales

This is used to gauge how efficiently a firm is utilizing its assets.

Asset Turnover = Sales

                        Total Assets

The amount of sales given the amount of assets a firm employs.

Fixed Asset Turnover = Sales

                                  Fixed Assets

An expression of a firm's accounts receivable in terms of the number of days' worth of sales that the accounts receivable represents.

Accounts Receivable Days = Accounts Receivable

                                       Average Daily Sales

Sales divided by either the latest cost of inventory or the average inventory over the year, it shows how efficiently companies turn their inventory into sales.

Inventory Turnover = Sales

                              Inventory

An assessment by lenders of a firm's leverage, it is equal to a measure of earnings divided by interest.

Interest Coverage = Operating Income (or EBIT)

                              Interest

The ratio fof a firm's net income to the book value of its equity. Evaluates a firm's return on investment by comparing its income to its investment.

ROE = Net Income

               Book Value of Equity

The ratio of net income to the total book value of the firm's assets.

ROA = Net Income

          Assets

Expresses return on equity as the product of profit margin, asset turnover, and a measure of leverage.

ROE = Net Income * Sales * Total Assets

                Sales   Total Assets   Total Equity

The ratio of the marekt value of equity to the firm's earnings, or its shae price to it's earnings per share.

P/E = Market Capitalization

    Net Income

P/E = Share Price

            Earnings Per Share

An accounting statement that shows how a firm has used the cash it earned during a set period.

Divided into three sections:

• Operating activities
• Investment activities
• Financing activities

We must adjust to changes in working capital:

• Accounts Receivable: Deduct incrases in accounts receivable.
• Accounts Payable: Add increases in accounts payable.
• Inventory: deduct increases in inventory.

The difference between a firm's net income and the amount it spends on dividends.

Retained Earnings = Net Income - Dividends

The ratio of a firm's dividends to its net income.

Payout Ratio = Dividends

                     Net Income

As long as the NPV is positive, the decision increases the value of the firm and is a good decision regardless of your current cash needs or preferences regarding when to spend the money.

NPV = PV (Benfits)-PV (Costs)

• It is only possible to compare or combine values at the same point in time.
• To calculate a cash flow's future value you must compound it.
• To calculate a future cash flow at an earlier point in time, we must discount it.

PV (C in perpetuity) = C

                                R

The total amount of interest that will be earned at the end of one year.

(Same as Annual Percentage Yield)

Interest Rate Per Compounding Period =

APR/# of compounding periods