HM 435 Exam 2
Terms in this set (48)
Financial position for a point in time.
A = L - O.E.
Current/ Short-Term Assets
Property / equipment
Paid In Capital
Measures Firm Performance
- Direct (f&b / Rooms)
- Indirect (Labor / Supplies / Merit)
- Noncash Expenses (Depreciation)
=Earnings b4 Tax
Statement of Cash Flows
Use of cash over a period of time.
Operating activities (NI + Depr - AR - AP)
+ Investing activities( - purch invests - purch equip)
+ Financing activities (Loans/Int/Sales - Div)
The difference in value due to the boost from marketing
Statement of Retained Earnings
Changes in the R.E. portion of the balance sheet over a period of time.
Uniform Systems of Accounts
Standardized income statement that allows for easier comparability between properties.
Ability of a firm to cover its current debts (liabilities, ex. bills).
☼ AKA Working Capital
☼ Impacted by AP, AR, Current Loans, Current Assets, Cash
☼ You don't want current ratio or working capital to be below 1!
Management's effectiveness regarding managing assets to generate rev
☼ High Inventory Turnover could be due to mgmt inefficiences
Ability to meet long-term debt.
/ extent of the use of debt financing.
Related to stocks.
Key measures of operating performance.
The portfolio providing the highest return for a given level of risk.
The weighted average of potential outcomes.
Uncertainty about weather an outcome will differ from expectations.
Not wanting to lose what you currently have.
Whereby investors must be compensated for bearing risk.
Prefer to avoid loss vs. acquire gain.
Potential distribution of dividends (outcomes); based on the probability of each outcome.
Helps us quantify risk.
Measures risk. How likely is the expected / weighted avg. & if not, how far are you from the mean.
A measure of dispersion around an expected value, or mean.
Coefficient of Variation
Measures which has a lower / higher risk btwn investments w/ different SDs.
☼ The ratio of SD of returns to expected returns.
Key to calculating /deciding which investment to invest in
High COV = High SD, High Variation = High Risk
Low COV = Low SD, Low Variation, Low Risk (ex. Risk Averse)
Holding two or more assets in a single portfolio
to maximize return and minimize risk.
Extent to which the returns of 2 assets move together over time. Ranges from -1.0 to +1.0.
☼ Ideal pair of assets would have a rho close to 0. = lowest possible SD.
A theoretical portfolio of all traded assets that is also the
most efficient/ best combo of returns vs. risk.
How to Hold the Market Portfolio
Maximum Diversification = 30 Assets in a portfolio.
Investors hold a proxy for the mkt portfolio (ex. mutual funds)
Capital Market Line
A line connecting the
risk-free rate of return through the market portfolio.
☼ The slope measures risk vs. return.
Above vs. Below The Capital Market Line
Doing better, more returns than necessary. (Investors really like you )
Below = the opposite.
ex. Gvt issued securities, treasury bills.
*Good for risk-adverse people.
Impacts entire system.
☼ Cannot be eliminated in a diversified portfolio.
☼ Investors are most concerned with this!
Related to 1 specific business or industry.
☼ Can be eliminated through diversifying a portfolio. (adding assets)
measuring an asset's systematic risk vs. the mkt port (m).
Mkt port. always has a base β of 1. (Ex. if a stock has a β2 it is x2 as risky as the mkt. )
The lower β is to 1, the less risky you are compared to the mtk.
**Restaurants usually have β < 1.
Security Market Line (SML)
A straight line measuring the return of a security vs. Beta.
Capital Asset Pricing Model (CAPM)
Min expected return, given the risk on the SML.
The slope/ Beta of the SML.
**If higher return than required, value created, project accepted.
**If lower return, value lost, project rejected.
Time Value of $
Basis of financial mathematics
-requires use of interest rates which show changing value over time.
Investors prefer to receive a fixed amount today vs. equal amount in the future.
Helps evaluate risk over time.
The process of a present value earning interest and growing to a future value.
☼ earning interest on the interest that you earn.
Finding the present value of a future payment.
☼ The interest rate used in the process is called the discount rate.
2+ equal, periodic fixed payments, w/ a pre-determined end-date.
☼ Ordinary A payments begin 1 period after the PV.
☼ Payments on the A begin the same date as the PV.
Payments that begin 2 periods after the PV.
An infinite series of never-ending, uniform payments.
☼ No future value.
Ex. Preferred Stock.
How to find the Future Value of a timeline?
The FV is always the last year of that timeline. Ex. 3 yr timeline, FV = yr 3.
The ROE %.
Also the cost paid on a loan expressed as a %.
Nominal Annual Interest Rate
The interest rate as stated in a contract. Does not take into account compounding.
The original amount of money invested or borrowed. The interest rate return on an investment or the interest rate cost of a lose is computed as a percentage of the principal.