Financial Statements
Current assets divided by current liabilities
What is the current ratio?
a level stream of cash flows for a specified period of time
What is an annuity
The amount of time that it takes to get back your original investment.
What is the Payback Period?
Dividend Yield + Capital Gains Yield
What is Percentage Return?
RE = Rf + Beta(RM - Rf)
What is the security market line?
Net income divided by shareholders' equity
What is return on equity?
= (1 + Quoted Rate/m)m - 1
What is the Effective Annual rate?
Average Net Income/Average Book Value
What is average accounting return?
The excess return required from an investment in a risky asset over the return from a risk free investment
What is the Risk Premium?
P0 = D1/(RE-g)
What is the constant dividend growth model?
Non cash income statement item
What is depreciation, amortization or deferred taxes?
A bond that does not pay interest only repays the Face Value at maturity
What is a zero coupon bond?
Investment costs, operating cash flows, opportunity costs, changes in net working capital and cannibalization but not sunk costs and financing costs
What are cash flows that should be considered when analyzing a new project?
The type of risk that can be eliminated through the the creation of a well diversified portfolio
What is unsystematic risk?
(E/V)*RE + (P/V)*RP + (D/V)*RD*(1-tx)
What is the Weighted Average Cost of Capital?
An increase in accounts receivable during a period has this effect on free cash flow
What is a decrease in Free Cash Flow?
The present value of coupon payments plus the the present value of principle repayment.
What is the value of a bond today?
Assumes that all cash flows are reinvested at the IRR.
What is one of the potential weaknesses of IRR as a capital budgeting tool?
95.4% of the potential outcomes in a normal distribution
What do 2 standard deviations cover?
The appropriate discount rate for project cash flows that have the same risk as the risk of the firm
What is the firm's weighted average cost of capital?
$1.23 per share, if net income is $123,000,000 and there are 1,000,000 shares outstanding
What is earnings per share?
The condition when a bond's yield to maturity is less than the coupon rate.
When a bond's market price greater then its face value?
A capital budgeting tool for analyzing the impact of changing a single parameter in the cash flow assumptions
What is Sensitivity Analysis?
The market price reflects all available public information
What is semi strong form market efficiency?
The impact of increasing debt to equity on volatility of earnings.
What is increases?