AFM373 Study Guide - Final Guide: Nopat, Net Present Value, Microeconomics

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM373
• Professor: Alan Douglas

Document Summary

Review post-midterm notes in depth (closely at advance student slides) A/r days = (a/r / sales) * 365. A/p days = (a/p / purchases) * 365. Nopat = ebit * (1 t c) Eva = nopat - wacc * invested capital. Roe = ni/e (e is beginning or average) D/e: debt over equity, a measure of leverage. An increase in d/e means that leverage is increasing because roe is insufficien t to keep pace with the asset growth (capex or wc) necessary to keep up with sales growth. A decrease indicates return on equity is providing enough funds to meet all asset growth needs and possibly pay off debt in addition. Shareholder value maximization theory: managers should have a criterion for evaluating performance and deciding between alternatives, and that criterion should be maximization of the long -term market value (including equity, debt, and preferred stock) of the firm.