Term
| Give two ways to calculate ROE |
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Definition
1) Net Income / Avg Equity
2) Return from Operating Activities + Return from non-operating activities |
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Term
| What two forces go into ROE? |
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Definition
1) Operations
2) Financing with Debt (non-operating) |
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Term
| What does RNOA stand for? |
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Definition
| Return on Net Operating Asssets |
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Term
| How do you calculate RNOA? |
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Definition
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Term
| How do you calculate Net Operating Assets? |
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Definition
| Total operating assets - Total operating liabilities |
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Term
| How do you calculate the effective tax rate? |
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Definition
| Tax Expense / Pretax Income. |
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Term
| What are the two forces that make up return on non-operating activities? |
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Definition
1) Financial Leverage
2) Spread |
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Term
| How do you calculate NOPAT? |
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Definition
| Operating Income x (1 - effective tax rate) |
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Term
| What does NOPAT stand for? |
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Definition
| Net Operating Profit After Taxes |
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Term
| How do you calculate gross profit? |
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Definition
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Term
| How do you calculate gross profit margin? |
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Definition
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Term
| How do you calculate the current ratio? |
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Definition
| Current Assets / Current Liabilities |
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Term
| How do you calculate Inventory Turnover? |
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Definition
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Term
| How do you calculate Account Payable Turnover |
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Definition
| COGS / Avg Account Payable |
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Term
| How do you calculate Account Receivable Turnover? |
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Definition
| Sales / Avg Account Receivable |
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Term
| What is spread with respects to non-operating activities |
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Definition
| The difference between how much a company can make on a borrowed dollar versus what the creditor loaned the dollar for. |
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Term
| What is leverage with respect to non-operating activities |
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Definition
| The notion you can take advantage of a spread by borrowing more money. |
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Term
| What is NOPM and NOAT and how are they related |
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Definition
NOPM = Net Operating Profit Margin
NOAT = Net Operating Asset Turnover
There is a tradeoff between the two and multiplied together they give you RNOA |
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Term
| How might a company reduce operating expenses at the expense of reducing long term performance? |
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Definition
| By reducing things like advertising and R&D. |
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Term
| How do you figure out how many outstanding shares of common stock are available for a given year? |
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Definition
| # Issued shares - # Treasury shares |
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Term
| Give reasons a company might buy back their stock |
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Definition
1) They feel stock is undervalued
2) To protect a takeover
3) To counter effect of stocks issued to employees under stock purchase plan
4) To return excess cash to investors as an implied dividend. |
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Term
| Why would the number of issued common shares remain constant while their value increases? |
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Definition
| This happens during a series of buy-backs and resales. |
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Term
| What are the two types of stock dividends and what are their thresholds |
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Definition
1) Small stock dividend (less than 20%)
2) Large stock dividend (more than 20%) |
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Term
| Assuming 1,000,000 outstanding $5 par common shares, how much does retained earnings go down if a 15% small stock dividend is issued when current price is $30. |
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Definition
| 30 x .15 x 1,000,000 = 4,500,000 |
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Term
| Assuming 1,000,000 outstanding $5 par common shares, how much does common stock go up if a 15% small stock dividend is issued when current price is $30. |
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Definition
| 5 x .15 x 1,000,000 = 750,000 |
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Term
| What pieces of data do you need to build a statement of stockholder's equity? |
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Definition
1) Prior period ending contributed capital
2) Retained Earnings
3) Cash Dividends
4) Net Income |
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Term
| What is the basic effect of converting a bond into common stock? |
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Definition
| You reclassify the original amount of the bond into common stock |
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Term
| If you have $1,000 convertible bonds converted into 20 shares of $10 par common stock what's the effect. |
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Definition
1) Reduce bond payable $1,000
2) Add common stock of 200 (20 share * $10 par)
3) Remaining $800 is added as additional paid-in capital |
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