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3 Aspects of Role of Financial Manager:

-Capital Budgeting
-Capital Structure
-Working Capital Management

Capital Budgeting

Firm's Needed Investment in New Assets

Capital Structure

Policy for Degree of Financial Leverage

Working Capital Management

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3 Forms of Business Organizations:

-Sole Proprietorship
-Partnership
-Corporation

Business Process for Public Companies

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Principal-Agent Problem

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Markets Types:

Primary, Secondary, Dealer, Auction

New RE =

Old RE + Net Income - Dividends

Tax Liability

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Average Tax Rate

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Marginal Tax Rate

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4 Items for Financial Plan

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Role of Financial Planning

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Pro-Forma Financial Statements:
-Percent-of-Sales Method

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Pro-Forma Financial Statements:
-Spontaneous vs. Non-Spontaneous Accounts

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Pro-Forma Financial Statements:
-Capacity

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Pro-Forma Financial Statements:
New RE =

Old RE + [Projected Sales x Net Margin x (1-Payout Ratio)]

Pro-Forma Financial Statements:
-External Financing Needed (EFN) or Discretionary Financing Needed (DFN) [Definition and Calculation]

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Capacity Usage Calculations

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4 Ways to Reduce EFN (aka DFN)

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3 Reasons Working Capital Management is Important

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2 Key Management Objectives for Short-Term Planning

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Operating Cycle

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Cash Cycle

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Inventory Period

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Accounts Receivable Period

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Accounts Payable Period

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Flexible Short-Term Financial Policy

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Restrictive Short-Term Financial Policy
-Size of Current Assets
-Carrying Costs vs. Shortage Costs
-Financing of Current Assets
-Temporary vs. Permanent Current Assets

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3 Major Considerations for Short-Term Borrowing Policies

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PV Lump Sum

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PV Annuity

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FV Lump Sum

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FV Annuity

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Annuity Due (Begin Mode)

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Regular Annuity (End Mode)

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Perpetuity

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Uneven Cash Flows (practice on calculator using cash flow CFj function and Nj function)

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Two Period Calculations (Switching from Lump Sums to Regular Payments and vice versa)

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Mortgage Balloon Payments

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Effective Annual Rate (EAR) (Can use calculator shortcut or equation to solve)

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Simple Interest (definition and calculation)

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Compound Interest (definition and calculation)

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Amortization (calculation)

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Assets =

Liabilities + Owners Equity

Working Capital =

Current Assets - Current Liabilities

Tax Bill =

Reference Tax Table Provided; Taxable Income x Tax Rate

Average Tax Rate =

Total Taxes Paid/Total Taxable Income

Marginal Tax Rate =

Reference Tax Table Provided; Rate of extra tax you would pay if you earned one more dollar

Current Ratio =

Current Assets/Current Liabilities

Quick Ratio =

(Current Assets - Inventory)/Current Liabilities

Average Collection Period =

Accounts Receivable/Daily Credit Sales

Accounts Receivable Turnover =

Credit Sales/Accounts Receivable

Inventory Turnover =

COGS/Inventory

Total Asset Turnover (TAT) =

Sales/Total Assets

Fixed Asset Turnover (FAT) =

Sales/Fixed Assets

Operating Income Return on Investment (OIROI) =

Operating Income/Total Assets

Debt Ratio =

Total Debt/Total Assets

Debt-Equity Ratio =

Total Debt/Total Equity

Times Interest Earned (TIE) =

EBIT/Interest Expense

Cash Coverage Ratio =

(EBIT + Depreciation)/Interest Expense

Return on Assets (ROA) =

Net Income/Total Assets

Return on Equity (ROE) =

Net Income/Total Equity

Dupont ROE =

(Net Income/Sales) x (Sales/Total Assets) x (Total Assets/Equity)

Gross Margin =

Gross Profit/Sales

Operating Margin =

EBIT/Sales

Net Profit Margin =

Net Income/Sales

Price to Earnings (PE) =

Price Per Share/Earnings Per Share (EPS)

Price to Sales =

Price Per Share/Sales per Share

Market to Book =

Market Value per Share/Book Value per Share

New RE =

Old RE + Net Income - Dividends

New RE =

Old RE + [Projected Sales x Net Margin x (1-Payout Ratio)]

Net Margin =

Net Income/Sales

Payout Ratio =

1-Plowback Ratio

Plowback Ratio =

1-Payout Ratio

Payout Ratio =

Dividends/Net Income

Plowback Ratio =

∆Retained Earnings/Net Income

External Financing Needed (EFN) =

Projected Total Assets - Projected Total Liabilities - Projected Owners' Equity

Sales at Full Capacity =

Total Sales/Capacity %

Fixed Asset Capital Intensity Ratio =

Fixed Assets/Sales at Full Capacity

Required Investment in Fixed Assets =

Projected Sales x Fixed Asset Capital Intensity Ratio

Internal Growth Rate (IGR) =

(ROA x b)/(1 - ROA x b) (Note: b is the plowback ratio)

Return on Assets (ROA) =

Net Income/Total Assets

Sustainable Growth Rate (SGR) =

(ROE x b)/(1 - ROE x b) (Note: b is the plowback ratio)

Return on Equity (ROE) =

Net Income/Equity

DuPont Equation for ROE =

(Net Income/Sales) x (Sales/Total Assets) x (Total Assets/Equity)

Debt-Equity Ratio =

Total Debt/Total Equity
(Note: You can manipulate the Debt-Equity formula and the A = L + E formula to solve for beginning equity.)

Ending Equity =

Beginning Equity + (Net Income x Plowback Ratio)

Operating Cycle =

Inventory Period + Accounts Receivable Period

Inventory Period =

365/Inventory Turnover

Inventory Turnover =

COGS/Average Inventory

Accounts Receivable Period =

365/Accounts Receivable Turnover

Accounts Receivable Turnover =

Credit Sales/Average Accounts Receivable

Cash Cycle =

Operating Cycle - Accounts Payable Period

Accounts Payable Period =

365/Accounts Payable Turnover

Accounts Payable Turnover =

COGS/Average Accounts Payable

Present Value of Perpetuity =

Payment/Interest Rate
(Note: Interest rate is calculated as decimal #; match numerator and denominator as quarterly, semiannual, annual, etc.)

Return on Perpetuity =

Payment/Present Value
(Note: Payment must be an ANNUAL amount.)

Simple Interest =

Original Principal x Quoted Interest Rate x # Years Invested

Compound Interest =

Future Value - Original Principal -Simple Interest

Effective Annual Rate (EAR) = [1 + (Quoted Rate/m)]m -1]

(Note: You may also use the NOM%, I/Yr, and EFF% calculator keystrokes for shortcut.)

Quoted Rate =
m =

Quoted Rate = Annual Percentage Rate (APR)
m = number of compounding periods per year

1st Month Interest =

Original Principal x Monthly Interest Rate

1st Month Principal =

Total Monthly Payment - 1st Month Interest

2nd Month Interest =

(Original Principal - 1st Month Principal) x Monthly Interest Rate

2nd Month Principal =

Total Monthly Payment - 2nd Month Interest

3rd Month Interest =

(Original Principal - 1st Month Principal - 2nd Month Principal) x Monthly Interest Rate

3rd Month Principal =

Total Monthly Payment - 3rd Month Interest

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