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Glossary of FIN314

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Progressive Tax
tax system where the marginal rates rise as income rises
Agency Problem
Management tends to act as if they own the firm even if they control a small number of shares
Commercial Paper
short-term debt obligations of high credit worthiness corps...for example - Exxon-Mobile
Systematic Risk
risks related to the overall economy or markets
Default Risk Premium
risk of non-payment of interest owed and/or principle of loan
Quick Ratio (Acid Test)
Current Assets - Inventories / Current Liabilities

Measured in "x" (ex: 2.1x)
Current Ratio
CR
Current Assets / Current Liabilities

Measured in "x" (ex: 2.1x)
Inventory Turnover Ratio
Sales / Inventory

Measured in "x" (ex: 2.1x)
Days Sales Outstanding
DSO
Accounts Receivable / (Sales/365)

Measured in "days" (ex: 36.5 days)
Fixed Asset Turnover
FAT
Sales / Net Fixed Assets

Measured in "x" (ex: 2.1x)
Total Assets Turnover
TAT
Sales / Total Assets

Measured in "x" (ex: 2.1x)
Debt Asset Ratio
DAR
Total Debt / Total Asset

Measured in "%" (ex: 20.3%)
Profit Margin
PM
EAT / Sales
Return On Assets
ROA
EAT / TA

Measured in "%" (ex: 20.2%)
Return On Equity
ROE
EAT / Common Equity

Measured in "%" (ex: 20.2%)
Price Earnings Ratio
P/E
Mkt Val. of Common Share / Earnings Per Share
Earnings Per Share
EPS
EAT / # Shares Outstanding
Price to Book Val. Ratio
P/B
Mkt Price of Common Share / Book Val. for Share
Book Value Per Share
BVPS
Common Equity / # of Shares Outstanding
Equity Multiplier
TA / Equity
2nd Du Pont System
ROA = (EAT / Sales) x (Sales / TA)
1st Du Pont System
ROE = ROA x TA/EQ (Equity Multiplier)
EAT/Sales
In 2nd Du Pont System
Profit Margin (Profitability)
Sales/TA
In 2nd Du Pont System
Efficiency
Market Segmentation
Theory 1 of Yield Curve
1)Different Supply & Demand Relationship w/in various Segments
2)Different institutions doing business in the various segments of the yield curve
Liquidity Preference
Theory 2 of Yield Curve
- short-term is more liquid than long-term
- liquidity has value
- Short-term has a lower interest rate than long-term
Market Expectations (Interest Rate Approach)
Theory 3 of Yield Curve
- Long-term rates is an avg of the current actual one year rate and expected future one-year rates up to the long-term bond's maturity
Market Expectations (Inflation Rate Approach)
Theory 3 of Yield Curve
-Long-term rate is determined by the real-rate plus the premium for the expected future inflation plus any risk premiums
Measure of Efficiency
DSO, Sales/INV, Sales/NFA

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