FIN314
Terms
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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
 shortterm debt obligations of high credit worthiness corps...for example  ExxonMobile
 Systematic Risk
 risks related to the overall economy or markets
 Default Risk Premium
 risk of nonpayment 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 
 shortterm is more liquid than longterm
 liquidity has value
 Shortterm has a lower interest rate than longterm 
Market Expectations (Interest Rate Approach)
Theory 3 of Yield Curve   Longterm rates is an avg of the current actual one year rate and expected future oneyear rates up to the longterm bond's maturity

Market Expectations (Inflation Rate Approach)
Theory 3 of Yield Curve  Longterm rate is determined by the realrate plus the premium for the expected future inflation plus any risk premiums
 Measure of Efficiency
 DSO, Sales/INV, Sales/NFA