Exam (elaborations)
FNCE 3050 CH3b FINANCIAL EQUATIONS
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FNCE 3050 CH3b FINANCIAL EQUATIONS ...
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FNCE 3050 CH3b FINANCIAL EQUATIONSTotal Assets are given ROA, Sales, and Profit Margin - ANSWER Total Assets =
(Sales * Profit margin) / ROA
Sustainable Growth Rate Given Dividend Payout Ratio and ROE - ANSWER 1.
Find Retention Rate (RR) = 1 - Dividend Payout Ratio
2. Sustainable Growth Rate = (ROE * RR)/( 1- (ROE * RR))
Internal Growth Rate = - ANSWER (ROE * RR) / (1 - (ROE * RR))
which is also the Sustainable Growth Rate
Retention Ratio = - ANSWER (1 - dividend payout ratio) or
Addition to Retained Earnings / Net income Available to Stock Holders
DuPont System of Analysis - ANSWER An analytical method that uses the balance
sheet and income statement to break the ROA and ROE ratios into component
pieces.
Current Ratio - ANSWER Current Assets / Current Liabilities
Quick Ratio - ANSWER (Current Assets - inventory) / Current Liabilities
Cash Ratio - ANSWER (cash + marketable securities) / current liabilities
Liquidity Ratios - ANSWER Measure the short-term ability of the company to pay
its maturing obligations and to meet unexpected cash needs.
Current Ratio, Quick Ratio, Cash Ratio
Asset Management Ratios - ANSWER financial ratios that measure how
effectively a firm is using its assets to generate revenues or cash
Inventory Turnover, Days' Sales in inventory, Accounts Receivable Turnover,
Average Collection Period, Accounts Payable Turnover, Fixed Asset Turnover,
Sales to Working Capital, Total Assets Turnover, Capital Density.
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