Finance 311 Study Guide

Purpose of any corporation: Create value for the owners and stockholders.
Income Statement set up:

Revenue
- COGS
- Admin Expense
- Depreciation
= Operating Income
- Other Income
= EBIT
- Interest Expense
= EBT
- Taxes
= NET INCOME ---dividends + retain earnings

EPS= net income/shares

The decision to issue additional shares of stock is an example of which one of
the following? Capital structure decision
Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The
stock is listed on the NYSE. This trade occurred in which one of the following?
Secondary, auction market
Net working capital= current asset current liabilities
Depreciation: reduces both taxes and net income
The Sarbanes-Oxley Act of 2002 is a governmental response to: management
of greed and abuse
Taxable income= NI/ (1-tax rate)
Profit margin = Net income / Sales
o Net income= sales(profit margin)
ROA = Net income / TA
TA = TD + TE
o ROE = Net income / TE
ROE = (PM)(TAT)(EM)
How to find COGS? =
o Current ratio= CA/CL
o Quick ratio= (CA-inventory)/CL
o Inventory turnover = COGS/inventory
Profit Margin = NL/S
Cash coverage ratio =
o Earnings before taxes = $8,450/(1 - .35) = $13,000.00
o Earnings before interest, taxes, and depreciation = $13,000.00 +
$1,300 + $1,900 = $16,200.00
o Cash coverage ratio = $16,200.00/$1,300 = 12.46 times
NI = Total equity*return on equity
o Return on equity= pm*total asset turnover *(1+debt equity ratio)

NWC= Ca-CL
Net Capital spending= NFAend NFAbeg + Depreciation
Pva due= (1+r)pv