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Flashcards

MAC3702

Marinda Steenkamp Business/Economics English 51 cards

Cards in this deck (51)

  1. 1Categorise resources into 7 items* Finacial Resources - a pool of funds
    * Manufactured capital - Tangible assets
    * Human Capital - peoples skills, experience
    * Intellectual capital - intangible assets
    * Natural capital - water, land, minerals
    * Social capital - institutions, relationships, established within and between each community.
  2. 2Business Risk + Financial Risk =Company Risk
  3. 3Business Risk raltes to theDialy operations of the business
  4. 4Financial Risk relates to theborrowing of long- and short-term funds.
  5. 5Business Risk is measured or affected by the following 6 items* Nature of business activities - thus, alhaal or not
    * Operating leverage - the formula
    * Physical state of fixed assets - e.g. grillers, tables, chairs
    * Political consideration - e.g. min. wage
    * Competition - Cattle Baron
    * Management - level of experience, capability
  6. 6Explain the purpose of Operating LeverageIt refers to the operational expenditure incurred to derive high marginal income.
    It measures the effect a future increase in sales will have on EBIT.
  7. 7What is the formula for Operational Leverage and how do you interpret the results.OL = Contribution / EBIT
    Remember EBIT = Contribution - Fixed Cost
    High OL = +-3
    Low OL = +- 1.5
    OL should be kept as low as possible
  8. 8Explain Financial Risk how do we measure it.It is the risk of not being able to repay the interest and capital on debt borrowings.
    This can be measured by calculating the financial leverage of the business.
  9. 9What is the formula for Financial Leverage and how do you interpret the results.FL = EBIT / (EBIT - Interest Expense)
    >1 = Business is geared (good)
    >1 = Business is ungeared (Risky)
  10. 10Calculate Total LeverageTL = OL x FL
  11. 11What needs to be done in order to create a true reflection of ratios?Common adjustments needs to be made such as decrease Goodwill, Deferred Expenditure.
    See page 3 of Varsity notes
  12. 12What are the 6 categories of ratios?1. Profitability
    2. Liquidity
    3. Working Capital
    4. Asset Management
    5. Debt Management
    6. Market Value
  13. 13The formula for the following Profitability Ratio: Growth/Movement Ratio(Current year - Prior year) / Prior year
    Answer in %
  14. 14The formula for the following Profitability Ratio: Gross Profit MarginGP from ordinary activities / Sales from ordinary activities
  15. 15The formula for the following Profitability Ratio: Operating Profit MarginOperating Profit / Sales from ordinary activities
    Answer in %
    Ordinary activities exclude interest and the effect of financing
  16. 16The formula for the following Profitability Ratio: Net Profit MarginNet Profit after tax / Sales from ordinary activities
    Answer in %
    Ordinary activities exclude interest and the effect of financing
  17. 17The formula for the following Profitability Ratio: Return on AssetsEarnings before interest, after tax / Total Assets
    Answer in %
  18. 18The formula for the following Profitability Ratio: Return on Other AssetsIncome from other assets / other assets (SOFA)
    Other assets = assets not related to operating business activities
    List them. Thus a formula per investment
  19. 19The formula for the following Profitability Ratio: Return on Operating AssetsOperating Profit / Operating Assets
    Answer in %
    Operating Profit = Profit before investment income.
    Operating Assets = Total Assets - Def. Exp - GW - other
  20. 20The formula for the following Profitability Ratio: Return on Equity (ROE)Ordinary Shareholder Earnings
  21. 21The formula for the following Profitability Ratio: Financial LeverageROE - ROA
    Answer in %
    Positive Leverage Effect = outside funding enabled the owners to earn a higher return on their capital that would have been the case if they had only used their own capital
    Negative Leverage Effect = it was the wrong decision to use outside funding because the owners could have earned a higher return by just using their own capital
  22. 22The formula for the following Profitability Ratio: Leverage RatioROE / ROA
    Answer in Number
  23. 23The formula for the following Liquidity Ratio: Current RatioCurrent Assets / Current Liabilities
    Norm = 2:1
  24. 24The formula for the following Liquidity Ratio: Acid Test Ratio/Liquid Ratio or Quick Ratio(Current Assets - Inventory) / Current Liabilities
    Norm = 1:1
  25. 25The formula for the following Liquidity Ratio: Operating Cash Flow to Current LiabilitiesCash flow from operations / Current liabilities
    Norm = 1:1
    Cash Flow from operations = Profit after tax (before unusual items) + Depreciation
  26. 26The formula for the following Working Capital Ratios: Working CapitalCurrent Assets - Current Liabilities
  27. 27The formula for the following Working Capital Ratios: Cash Ratio(Cash + Cash Equivalent + Marketable securities) / Current Liabilities
  28. 28The formula for the following Working Capital Ratios: Business CycleInventory Days + Accounts Receivable Collection Period - Accounts Payable payment period
    Thus the days being out of pocket
  29. 29The formula for the following Working Capital Ratios: Inventory Days(Average Inventory / Cost of sales) x 365 days
    Average Inventory = (o/s x c/s) / 2
  30. 30The formula for the following Working Capital Ratios: Accounts Receivable Collection Period(Average Trade Debtors / Credit Sales) x 365 days
  31. 31The formula for the following Working Capital Ratios: Accounts Payable Payment Period(Average Trade Creditors / Credit Purchases) x 365 days
    Credit Purchases = C.O.S - OI + CI
  32. 32The formula for the following Debt Management Ratios: Debt RatioTotal Debt (Liabilities) / Total Assets
  33. 33The formula for the following Debt Management Ratios: Debt : EquityLong-term interest bearing debt / Shareholders interest
  34. 34The formula for the following Debt Management Ratios: Gearing RatioLong-term + Short-term interest-bearing debt (SOCI) / Shareholder interest + Long-term + Short-term Interest bearing debt
  35. 35The formula for the following Debt Management Ratios: Debt Settlement PeriodTotal Debt - Cash + Cash equipement / Cash Flow from operations
    Answer in years.
  36. 36The formula for the following Debt Management Ratios: Interest CoverEarnings before interest and tax / Finance Cost
    Answer in times
  37. 37The formula for the following Debt Management Ratios: Cash flow to total debt RatioCash flow from operations / Total Debt
  38. 38The formula for the following Market Value Ratios Price Earnings RatioShare price (c) / Earnings per share(c)
    EPS = (Net profit - NCI shares of profit - Prev. Dividends) / # of Shares issued
  39. 39The formula for the following Market Value Ratios Earnings YieldEPS(c) / Share price (c)
    Answer in %
  40. 40The formula for the following Market Value Ratios Market to Book RatioShare Price (c) / Book value per share(c)
    Answer in times
  41. 41The formula for the following Market Value Ratios Dividend CoverOrdinary Shares Pref.
    EPS (c) / Dividends per share (c)
    Answer in times
  42. 42The formula for the following Market Value Ratios Dividend YieldDividend per share (c) / Share price (c)
    Answer in %
  43. 43The formula for the following Market Value Ratios Dividend Payout RatioDividend per share(c) / EPS (c)
    Answer in %
  44. 44The formula for the following Market Value Ratios Book Value per ShareTotal Book Value / # of shares issued
    Answer in R
  45. 45The formula for the following Market Value Ratios Market Capitalization# of shares issued x Market value per share
  46. 46The formula for the following Market Value Ratios Market Value per shareTotal Market value / # of shares
    or
    Dividends per share / Dividend Yield
    or
    Earnings per share / Earnings Yield
    or
    Earnings per share x PE ratio
  47. 47Operating Asset Turnover RateSales from ordinary activities / Operating assets
    Answer in times
  48. 48Preference Dividend CoverNet Profit - NCI shares of Profit / Total Pref. Dividends
  49. 49Name the tools that can be used to identify businesses in difficultyZ-Score
    K-Score
    A-Score
  50. 50Explain the Z-Score as a tool that can be used to identify businesses in difficultyZ = 0.12a + 0.014b + 0.033c + 0.006d + 0.999e
    a = working capital / total assets (excluding current liabilities)
    b = retained earnings / total assets
    c = EBIT / Total assets
    d = Market value of equity / book value of total liabilities
    e = sales / total assets
    Interpretation:
    Z < 1.81 high risk of short term failure
    Z > 2.99 shows a low risk of failure
    1.8 < Z > 2.99 is inconclusive
  51. 51Explain the K-Score as a tool that can be used to identify businesses in difficultyk = 0.01662a + 0.0111b + 0.0529c + 0.086d + 0.0174e + 0.01071f - 0.06881
    a = total outside financing / total assets x 100%
    b = EBIT / average total assets x 100%
    c = (Total current assets + listed investments) / total current liabilities
    d = profit after tax / average total assets at book value x 100%
    e = cash flow proift after tax / average total assets x 100%
    f = total stock / inflation-adjusted total assets x 100%
    Interpretation
    K < -0.19 is sure to fail unless positive corrective steps are taken
    K > +0.2 relatively safe
    -0.19 < K < +0.2 is inconclusive

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Business/Economics Flashcards on MAC3702, created by Marinda Steenkamp on 07/08/2018.
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