Major uses of cash would be investment in depreciable assets and payments of long-term debt 2. Was cash flow from operations greater than or less than net income? Explain in detail the major reasons for the difference between these two figures Cash from operations is greater than that from net income. The increase in net operating cash can be accounted to: • • Depreciation:- The value is subtracted in net income, but not from cash as it does not result in any cash Restructuring and other unusual item:- This reduces the net income, however it doesn’t affect the net cash 3. Was the firm able to generate enough cash from operations to pay for all capital expenditures?
Throughput is the rate at which the system generates money through sales while inventory is all the money that the system has invested in purchasing things which it intends to sell. And operational expense is all the money the system spends in order to turn inventory into throughput. In traditional meaning, throughput is defined as the rate at which the system generates money through production whereas inventory includes the direct labour cost invested on the products and operational expense is all the money the system spends in order to turn inventory into throughout. I found the new definition is useful because it eliminates the confusion over whether the money spent is an investment or an expense . 2.
2. Prepare a formal journal entry to record the treasury stock transaction. Treasury stock 400,000 Cash 400,000 3. Identify the specific paragraph of the FASB Codification which addresses this issue and submit a printout of this paragraph with your solution. Codification 505-30-30-3 guides that “If the purchase of treasury shares includes the receipt of stated or unstated rights, privileges, or agreements in addition to the capital stock, only the amount representing the fair value of the treasury shares at the date the major terms of the agreement to purchase the shares are reached shall be accounted for as the cost of the shares
With local operations in over 200 countries around the world. Debt Ratio (in Millions of Dollars) 2013 2012 Total Liabilities / 1,085 1,148 Total Assets 1,276 1,283 Debt Ratio 83.50% 89.48% The ratio shows the company’s ability to cover its debts through its total assets. The ratio was 89.48% in 2012, then went down in 2013 to 83.50%. The ratio has to be low. So we can interpret that in the year 2013, the risk of the firm is getting lower as the ratio goes down.
If a fund has 100 percent turnover rate that means the fund manager, in theory has sold every single stock position once. Portfolio turnover is an important component to assess the management style of a fund. Each trade (buy/sell) costs brokerage commissions, even though mutual funds pay lower commissions than individual investors, it was observed that brokerage costs can account for 0.5% to 2% assets managed; smaller funds with high rates of portfolio turnover have higher costs. For tax purposes, brokerage commissions are considered as “capital costs” as they are considered part of the cost of the securities purchased and hence are not part of the Management Expenses Ratio. Trading expenses, which include brokerage
Answer: F 1-8 Because bank loans have a shorter maturity than most debt contracts, FIs typically exercise less monitoring power and control over the borrower. Answer: F 1-9 FIs typically provide secondary claims to household savers that have inferior liquidity than primary securities of corporations such as equity and bonds. Answer: F 1-10 Because the average maturity of assets and the average maturity of liabilities are often different on an FIs balance sheet, the FI is exposed to liquidity risk. Answer: F 1-11 When an FI functions as a broker, they are selling a financial asset that they have created and will continue to hold on their balance sheet. 1-1 Chapter 01 - Why Are Financial Institutions Special?
Usually a discount of 10 percent to 40 percent is applied to private companies due to the lack of liquidity of their shares. Precedents/acquisition comps: At what metrics (same as above) were similar companies acquired? Discounted cash flow (“DCF”): Based on the concept that value of the company equals the cash flows the company can produce in the future. An appropriate discount rate is used to calculate a net present value of projected cash flows. Leveraged Buyout (“LBO”): Assuming an IRR (usually 20 percent to 30 percent), what would a financial buyer be willing to pay?
Generally accepted accounting principles prescribe the accrual basis of accounting over the cash basis of accounting. The accrual basis of accounting measures the performance of a business by showing in detail every transaction regardless of when the funds are received. Cash basis of accounting only accredits earnings and expenses when money is really being paid out or received. The cash basis of accounting is a less expensive way of keeping records but the failure of using this method is that financing is very difficult because of inaccuracy. The big difference between accrual and cash basis of accounting is when one uses cash basis entries are recorded at the time payment is received.
Question 12 Question 13 Define capital employed. Write down the acid test calculation. Question 14 What is measured by the profit margin? Question 15 What is meant by ROCE? Question 16 State a source of both short-term and long-term funds.
The money of the fund is not restricted to investment in only one security but it can be invested in different securities. There is an old saying: Don’t put all your eggs in one basket. This is done to reduce the risk that would rise if the all the fund money was invested in one security. If one invest most of savings in one security due to tremendous gains in that security then he/she is exposed to any risk that faces that investment. A risk of price fall is always there, but losses on some investment with the help of diversification is off set by the gains on others.