Mgmt405 Microeconomics Study Sheet

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Also, Allowance for Inv breakage/shrinkage (contra asset), Warranty Liability, Returns Liability/Allowance

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LIFO: Higher COGS, Lower ending Inv     [pic 16]

Cost of goods available [Beg Inventory+Purchases] = COGS + Ending Inventory [goods not sold]

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Land/Const-in-progress do not depreciate

Recoverability test 🡪 Undiscounted future cash flows (until useful life) ≥ book value  (IFRS uses fair value ≥ Book value)

Improvements increase book value (CFI), maintenance is an expense (CFO)

Goodwill = Acquired Liabilities – Acquired ID’able assets + acquisition price

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Premium Bond: Proceeds > FV,  Coupon > Eff Rate,  Coupon > Interest Expense,  Coupon payment reduces NBV of B/P

Discount Bond: Proceeds < FV,  Coupon < Eff Rate,  Coupon < Interest Expense,  NBV of B/P increases after paying coup.

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NBV B/P = PV of future payments, discounted  🡪  [pic 23]

        Interest paid = coupon payment[pic 24]

Gain/Loss = Proceeds – NBV

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Shares Auth’d = Shares issued + not issued;  Shares outstanding (held by shareholders) = Shares issued – Treasury Stock[pic 29]

Gain or loss on share reissuance not recognized on I/S

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                                                                    (Earnings Yield)

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   (Dupont Analysis)      Market-to-book Ratio [pic 35][pic 36]

Common-size I/S 🡪 Divide all by net revenue

Common-size B/S 🡪 Divide all by total assets

Valuation multiples 🡪 Market cap/Revenue

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Revenue recognition – Revenue must be earned/delivered/rendered and must be realized/realizable/converted to cash

CFO: Interest and dividend inflow, Interest payment outflow, income taxes outflow

CFI: Dividend outlflow

Ways to increase earnings – hold qtr open, recognize expenses or not, classification shifting

Why? – getting ready for IPO, smoothing growth

Returns reduce revenue, Warranty Liab 🡪 COGS, AFDA reduces A/R

AFDA Beg – Writeoffs + Bad Debt Expense = AFDA Ending

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