Financial Management Chapter 1-4 (copy)

Source of Cash

A decrease in an asset or an increase in a liability or equity account

Use of Cash

increase in an asset account or

decrease in a liability or equity account

Operating Cash Flow (OCF)

Net Income + Depreciation + sources - uses (of current assets and current liabilities, not cash or notes payable)

Or

EBIT+Derpreciation-taxes

investing cash flows

Change in Net Fixed Assets + Depreciation (if result + then make -, if result - then make +

Financing Cash Flow

Change in Notes Payable + Change in Long-term Debt + Change in Stock (Common + Preferred)

Capital Structure

the mix of equity and debt financing a firm uses to meet its long-term invesment financing needs

Main goal of Financial Management is to

maximize the current value per share of existing stocks

Entrenchment strategies

Manager secures his job by making it harder to fire him

cash flow to creditors

interest paid - net new borrowing

Cash flow to stock holders

dividends paid - net new equity raised

Dupont Identity

ROE=profit margin x total asset turnover x equity multiplier

cash flow from assets

operating cash flow-net capital spending-change in NWC

Net Capital Spending

ending net fixed assets- beginning net fixed assets + depreciation