| Term | Definition |
|---|
| How far out you can accuratley plan. You do this through knowledge and change. Good to be able to plan at least 5 years out. | Planning Horizon |
| Using excel. Scenario testing - (base case, worst case, best case). | Forecasting |
| Statistical measure that attempts to determine the strength of the relationship between one dependent vaiable and a series of other changing variables. | Regression analysis |
| Short-term borrowing - banks trade/vendor credit cards. FED funds rate (25 basis points) + banks add 3% = Prime rate (3.25%). Also add banks risk (1%, 2%, 3%, 4%, 5% or nothing) | Cost of Money |
| Long - term borrowing. U.S. treasury (risk free rate) - 5, 10, 20, 30 years; starting at 1.5% and going to 3.9% which is the nominal or coupon rate. Plus adding risk. | Cost of Money |
| Chance of loss on money. Stems from probabilities and knowledge (changing). | Financial risk |
| Earnings Before Interest, Taxes, Depreciatioin, and Amortization. Measures the entire firm's performance. | EBITDA - (Cash flow) |
| Inflation | Inflation |
| Generaly Accepted Accounting Principles. | GAAP |
| Publicly traded companies. | SEC |
| Report of a company's performance that must be submitted quartely by all public companies to the SEC. | 10-Q's |
| Summary report of a company's performance that must be submitted annually to the SEC. | 10-K's |
| Price of stock X Float = Market Cap. | Market capitalization |
| More accurate look at operating efficiency for leveraged companies. It does not include the tax savings many companies get because they have existing debt. (blank) = EBIT(1 - Tax rate) | NOPAT |
| (blank) = (Operating captial)(ROIC - WACC). (blank) attempts to capture the true economic profit of a company. | EVA |
| (blank) = Net income available to common stockholders / Total assets | ROA |
| (blank) = (Gain from Investment - Cost of Investment) / Cost of Investment | ROI |
| (blank) = Net income available to common stockholders / Common equity | ROE |
| (blank) = Current assets / Current liabilities | Liquidity ratio - Current ratio |
| (blank) = (Current assets - Inventories) / Current liabilities | Liquidity ratio - Quick ratio |
| (blank) = Sales / Inventories | Inventory turnover ratio |
| (blank) = Recivables / (Annual sales / 365) | DSO (Days sales outstanding) |
| (blank) = Sales / Net fixed assets | Ageing - Fixed assets turnover ratio |
| (blank) = Sales / Total assets | Ageing - Total assets turnover ratio |
| (blank) = Total liabilities / Total assets | Debt to equity ratio |
| (blank) = EBIT / interest expense | TIE (Times interest earned) |
| (blank) = Net income / Number of shares (float) | EPS (Earnings per share) |
| The value in todays current price of future dollar amount discounted by inflation or required rate of return. | Present value of money |
| The project cost of capital, or discount rate. It is the rate used to discount future cash flows in the net present value method or to compare with the internal rate of return. | Hurdle rate |
| Incremental cash flow | Incremental cash flow |
| Chance of loss on money. Chance is probability and probability is knowledge. | Risk - Chance of loss (probability) |
| 1. Time; 2. Appreciation; 3. Inflation. Rule of 72. | Future value of money |
| (blank) uses computer software (Excel). | Simulation studies |
| Can run scenarios so managers know the profit and outlook of the company from day to day and every hour. Best, Base, and Worst case scenarios. | Scenario analysis - Forecasting |
| (blank) = Price of stock X Float. Value of a publicly traded company. | Market capitalization |
| (blank) = (Previous price of stock X Float) - (Current price of stock X Float). Value of a CEO. | Market value added (MVA) |
| (blank) = NOPAT - Net investment in operating capital. (blank) is the available (or free) for distribution to all of the company's investors, including creditors and stockholders. | Free cash flow (FCF) |
| (blank) = Operating current assets - Operating current liabilities. (blank) is the working capital acquired with investor-supplied funds. | Working capital |
| (blank) = U.S. treasuries rate | Risk free rate |
| Incremental cash flow | Incremental cash flow |
| (blank) = Dollar amount of the interest; (blank) = time; (blank) = cumulative incremantal cash flow | Cash-on-Cash |
| (blank) = CF0 + (CF1 / (1+r)^1) + (CF1 / (1+r)^2)... | NPV |
| (blank) = CF0 + (CF1 / (1+IRR)^1) + (CF2 / (1+IRR)^2)...(blank) is the project's expected return, defined as the discount rate that forces the NPV to equal zero. | IRR |
| (blank) = Number of years prior to full recovery + (Unrecovered cost at start of year / Cash flow during full recovery year). (blank) is the expected number of years required to recover the original investment. | Payback |
| (blank) is a situation in which a firm limits it capital expenditures to less than the amount required to fund the optimal capital budget. | Capital rationing |
| (blank) - want to have this to sell your shares back to the company if you opt out. | ESOP - Buy/Sell agreement |
| (blank) = Cash flow (EBITDA) / Cap rate. (blank) is IRR, ROI, ROIC, Target Rate. | Cap rate |
| Research/knowledge. | Due diligence |
| (blank) is the "trust" or something a "normal man" would do between a principal and agent. | Agent/principal - Fiduciary |
| The market value of an asset after its useful life. | Salvage value |
| Cost of money. Short-term = FED funds rate + Bank rate + Risk = Prime rate. Long term = FED government bonds + risk. | Cost of capital |
| Fastest way to raise IRR is to reduce (blank). Lease instead of paying cash. | Investment - cash |
| (blank) = Long term debt / Senior debt. (blank) is the weighted average of the after-tax component costs of capital - debt, preferred stock, and common equity. | WACC |
| Accepting a lower rate of return at the same amount of risk. | Opportunity cost |
| (blank) are for unforseen events. They are put under extrodinary items. It is considered risk so you buy (blank). Transfer of risk. | Externalities - Insurance |
| (blank) is when you know where the company stands day to day and minute to minute. Best, Base, and Worst case. | Secnario testing |
| (blank) is computer software (Excel) | Simulations |
| (blank) is having a walk away point. Yes - No (blank). If you have too many no's it's time to walk away. | Abandonment - Decision trees |
| (blank) is the risk of losing money. Financial leverage - Debt. | Financial risk |
| Maximizing the amount of return at an acceptable level of risk. | Opitmal financial structure |
| Financial risk. | Financial leverage - Debt |
| Maximizing the rate of return on your asset base. ROA. | Operating leverage |
| Miller and Magleani. Winners of the nobel peace price for WACC. | M&M |
| Form of financing. Problem is dilution. | Sale of equity |
| Initial Public Offering. Primary offering to primary market to secondary market which is the stock market. | IPO |
| Additional offering of stock to raise capital. | Secondary offering |
| Biggest down fall to going public. Selling of stock dilutes ownership by 40%. | Dilution |
| Registered 144 shares. SEC restricts sale of shares for a period of time. Need buy/sell agreements. | Founders shares |
| Issued for very specific resons. Non-voting shares. Specialized form of financing and usually has a coupon rate. | Preferred issues |
| Unsecured bonds. Carries a coupon rate. After a certain period of time gets converted to common shares. Companies earnings go up due to no interest expense but EPS goes down. Also gives senior position in bankruptcy. | Convertiable debentures |
| Need them to start an IPO. Rich people. Have to have $250,000 of income a year to qualify. Large corporations easily qualify. | Private placements - Accredited investors |
| Get money from insurance or pension funds. Way to earn 3-5 X's your money back in 3-5 years. Need an exit strategy; IPO or sale of business. | Venture capital business |
| Large IPO the lead underwritter will create syndicates to sell shares. Example is participation loans. (blank) is the commission to be paid. | Underwriting syndicates - Flotation costs |
| Don't have to go through formal perspectus for secondary offerings of stock. | Shelf registrations |
| IPO - Buy stocks of shares at $12 per share with a right to purchase additional shares at $14 per share in the future. | Rights and Warrants |
| Low or no down paymet. FASB 60. | Leasing - Net advantage of leasing |
| Off balance sheet financing. Lessor pays maintance/taxes/insurance. Expensed on the income statement (rental expense). | Operating lease or open ended |
| Capital/closed end/financial lease goes on the balance sheet as liability (Fixed period of time; Residual value - Have a right to pay residual value and keep the asset). Triple net leases - Lessor pays maintance/insurance/taxes. | Financial lease |
| Have a right to pay residual value and keep the asset after the lease is up. | Residual value |
| 1. Cash; 2. Inventories (Want to get rid of inventory by JIT inventory system. This is acomplished by barcoding. Can get rid of insurance, taxes, stolen/damage goods, obsolete); 3. Sales; 4. A/R (This has been replaced with debit cards and credit cards). | Cash conversion cycle |
| A firm's investment in short-term assets - cash, marketable securities, inventory, and accounts receivable. | Working capital |
| The rate at which a new company uses up its venture capital to finance overhead before generation positive cash flow from operations. In other works, it's a measure of negative cash flow. (Ex: reduce employes). | Burn rate |
| Check float - writing a check and companies turn it into an electronic payment. Reduces DSO. | Float |
| It's the evolution. Companies incorparting JIT. Most efficent way to set up warehouse and store. Flow time, thru-time, negoiation, inventory control. | IT - Supply chain management |
| Lender is goin gto keep money back from you. When getting the loan or lease bank will want you to open savings account with $10,000. | Compensating balance |
| They are attached to personal property. Need this for a business loan. Attached to a house; if you don't pay the loan they will take your house. If business goes south bank can foreclose on personal property. Forms of repayment: 1. Cash flow - pro forma risk; 2. Collateral - can depreciate; 3. Personal guarantee; 4. Liens on other assets. | Personal guarantees |
| (blank) - "Whole is greater than sum of the parts" (1 + 1 = 3). Value of merger istself. Ex. U.S. Airways and America West. Acqusitions - if you want to own a business, buy one. | Mergers - Synergism |
| Merging with a company in the same sector. Ex. Auto glass companies and funeral home companies. | Horizontal mergers |
| Raw materials, manufacturing, distribution, retail. Want to be as much (blank) as possible. This will make you wealthy. Have to be careful; too much (blank) can be monopolistic. | Vertical mergers |
| Involves firms that are interrelated but do not have identical lines of business. Exapmle is McDonalds. | Co-generic merger |
| Occurs when unrelated enterprises combine, such as Mobil Oil and Montgomery Ward. Not used very much these days. Ex. is GE. | Conglomerates merger |
| The acquisiotion of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. "Junk bonds." | LBO financing |
| Breakup value | Breakup value |
| A method of valuing a business that involves the application of capital budgeting procesdures to an entire firm rather than to a single project. | Valuation - DCF |
| The interest rate used in determining the present value of future cash flows. | Valuation - Discount rate |
| Trading same commodity in two seperate markets. Risk free. | Arbitrage transactions |
| Joint venture - Intrapeneuriship | Joint venture - Intrapeneuriship |
| Allows its owner to purchase a share of stock at a fixed price, called the strike price or the exercise price, no matter what the actual price of the stock is. Stock options always have an expiration date, after which they cannot be exercised. | Stock options/futures |
| Buy at a strike price. An optioin that allows the holder to buy the asset at some predetermined price within a specified period of time. | Call option |
| Sell at a stike price. Allows the holder to sell the asset at some predetermined price within a specified period of time. | Put option |
| Imparitive to have (blank) on portfolio against externalities. Form of insurance. Own the asset. Examples: Corn farmer writes put contracts to sell the corn. Kellog's writes call options to buy the corn. | Hedging |
| "Playing the market." What caused the price of barrels of oil to rise and decrease within 2 months by writting put and call options. | Speculating |
| The price stated in the option contract at which the security can be bought (or sold). | Strike price |
| Amount that must be paid per share in the contract to buy or sell at the strike price. | Contract price |
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