Chapter 1 * Cash flow from assets (CFA) = OCF – NCS – ΔNWC * OCF= Operational cash flow = EBIT + Dep – taxes = EBIT (1 – T) + Dep * NCS= Net Capital Spending NFAEnd – NFABeg + Dep * NWC= Net Operating Working Capital = NOWCEnd - NOWCBeg * Free Cash Flow (FCF) = (Revenues – Costs) (1- Tc) – Cap. Expenditures – ΔNWC + (Dep) (Tc)

Chapter 4 * Financial Planning has three important uses: 1. Forecast the amount of external financing that will be required 2. Evaluate the impact that changes in the operations plan have on the value of the firm 3. Set appropriate targets for compensation plans * The following steps are used to develop a financial forecast: 1. Forecast sales 2. Project the assets needed to support sales 3. Project internally generated funds 4. Project outside funds needed 5. Decide how to raise funds 6. See effects of plan on ratios and stock price * Parts of financial planning model: * Inputs * The planning model * Outputs * Key Ratios: * Profit Margin: NI/ Sales * ROE: NI / Common equity * DSO: AR/ (Annual Sales / 365) * Avg. time it takes to collect rev after sale has been made * Inventory Turnover: Sales/ Inventory * Fixed Asset Turnover: Sales/ NFA (Net Fixed Assets= Fixed assets- acc. Depre.) * Debt/ Assetss: TD (Total Debt) / TA (Total Assets) * TIE: EBIT/ Interest Expense * Current Ratio: CA (Current Assets) / CL (Current Liabilities) * NOPAT (Net operating profit after tax) : EBIT (1 – T) *T= Tax rate * NOWC (Net Operating working Capital): CA (current assets = cash + accts rec. + Inventories) – A/P & Accurals (Accounts payable + Accrued expenses) * Excess of current assets over operating current liabilities. * Total Net Operating Capital: