Financial Management and Operations Management Review

These flashcards cover key concepts from financial management and operations management discussed in the lecture, focusing on financial statements, ratios, efficiency, optimization, and inventory management.

What is financial management primarily concerned with?

Optimally managing financial resources to achieve the greatest profit.

What are the main financial statements discussed in class?

Income statement, balance sheet, cash flow statement, and statement of owner's equity.

What do financial ratios measure?

Performance in areas such as profitability, liquidity, solvency, and efficiency.

What is the leverage principle?

It guides decisions on whether it's profitable to borrow money for short-term needs and integrate that into long-term financing.

What is technical efficiency?

Achieving maximum productivity from a given input in the production process.

What is economic efficiency?

Producing each unit at the least cost, optimizing profit while considering input costs.

What is linear programming used for?

Making optimal decisions in constrained optimization problems, particularly in production.

What is the economic order quantity (EOQ)?

The optimal amount of inventory to order to minimize the sum of carrying and ordering costs.

What is the reorder point?

The inventory level at which a new order should be placed to avoid stockouts during the lead time.

How do you define breakeven analysis?

A short-term decision-making tool to determine the sales volume needed to cover costs.

What are isoquants and isocosts?

Isoquants represent combinations of inputs producing the same output, while isocosts represent combinations of inputs that can be purchased at a certain cost.

What constitutes a non-negativity constraint in linear programming?

It ensures that no negative amounts of inputs or outputs are selected in decision-making.

How is profitability assessed using financial ratios?

By analyzing key ratios such as returns on sales and earnings on sales.

What is the primary goal of production planning?

To achieve optimal input and output mix to maximize efficiency and minimize costs.

What are the consequences of providing credit to customers?

Can be an area of profitability but also a cost area where control is essential.

What does constrained optimization in production refer to?

Deciding the optimal level of inputs or outputs given limited resources or constraints.

How do variations in carrying costs affect inventory management?

Changes in carrying costs can shift the economic order quantity, affecting ordering decisions.

return on sales ratio

net profit after taxes/net sale

quick ratio

(total current assets-inventory)/total current liabiltes

quick ratio goal

0.8 to 1.0

current ratio goal

<2.0

debt to equity ratio

total liabilites/owners equity

debt to equity ratio goal

<1.0

solvency ratio

owners equity/total net assets

solvency ratio goal

>0.5

debt to assest ratio

total liabilties/total assets

debt to assets ratio goal

<0.5