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
- 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