WGU C214 Terms Defined and Formulas || Verified by
Certified Professional 2023-2024
Discretionary Financing Needed Formula -{ Defintions /ANSW}- Discretionary Financing Needed (DFN) =
Projected Total Asset - Projected Total Liabilities - Projected Equity
Sustainable Growth Rate Formula -{ DEFINTION /ANSW}- Sustainable Growth Rate (SGR) = Return on
Equity (ROE) X (1-Divided Payout Ratio)
Cash Flow from Operating Activities (CFO) Formula -{ Definitions /ANSW}- Cash Flow from Operating
Activities (CFO) = Net Income + Depreciation +/- Decreases/Increases in Current Assets +/-
Increase/Decrease in Current Liabilities
Cash Flow form Investing Activities (CFI) = Change in PPE + Depreciation -{ Defintions /ANSW}- Cash
Flow from Investing Activities (CFI) Formula
Cash Flow from Financing Activities (CFF) Formula -{ Defintions /ANSW}- Cash Flow from Financing
Activities (CFF) = Change in Equity + Change in Long Term Debt - Dividends paid
Gordon Growth Model Formula -{ Defintions /ANSW}- Gordon Growth Model = (Expected Dividend at
end of year)/(Required Rate of Return - Dividend Growth Rate)
Degree of Operating Leverage (DoL) Formula -{ Defintions /ANSW}- Degree of Operating Leverage (DoL)
= (Sales Revenue - Variable Cost)/ Net Income
Annual Percentage Yield (APY) Formula -{ Defintions /ANSW}- Annual Percentage Yield (APY) = (1 + r/n)
(n) - 1
r = stated annual interest rate
N = number of compounding periods.
Income Statement -{ Defintions /ANSW}- Revenues = Amount generated by sale of products and
services
,Expenses = Amount incurred to manufacture products
Income = The difference between revenues and expenses
Balance Sheet -{ Defintions /ANSW}- Assets = Items that are owned by the company
Liabilities = Amounts owed by the company to others
Equity = Invested in the company by shareholders
Income Statement (more details) -{ Defintions /ANSW}- - 1st financial statement every company must
prepare
-use accrual principal for both the revenue and expense
-revenue must be recorded the moment it is delivered to customer (despite receiving payment)
-Expense recorded the moment its incurred
What is included in the income statement and not in the statement of cash flows? -{ Defintions /ANSW}-
Depreciation expense - Necessary to manufacture the product but the company will never pay cash for
it.
-the value goes down
-excluded from statement of cash flows because cash will never be paid for it.
-included in income statement
Statement of Retained Earnings -{ Defintions /ANSW}- It shows how much of the income the company
earns every year is distributed in the form of dividends and how much is retained to grow the business.
A firm reported sales revenue of $100,000 margin (profit margin) of 25% and dividend payment ratio of
10%. The beginning retained earnings was $20,000. What is the ending retained earnings? -
{ Defintions /ANSW}- Ending retained earnings = beginning retained earnings + income earned during
the year - dividend payment = retained earnings
$20,000 + (.25 X 100,000) - (.10 X (.25 X 100,000) = $42,500
, - Dividends are paid out of profit
Balance Sheet Equation -{ Defintions /ANSW}- Assets = Liabilities + Stockholder's Equity
Another equivalent of this is Equity = Assets - Liabilities
Statement of Cash Flows -{ Defintions /ANSW}- - Shows the change in cash balance for a period of time.
Statement of Cash Flows Components -{ Defintions /ANSW}- 1. CFO = Cash Flow from Operating
Activities
2. CFI = Cash Flow from Investing Activities
3. CFF = Cash Flow from Financing Activities
CFO (cash generated and used) Formula reminders -{ Defintions /ANSW}- -current assets aka operating
assets and is usually linked to accounts receivable (AR)
-an increase in accounts receivable will cause a minus
- current liabilities aka operating liabilities and is usually linked to accounts payable (AP)
-an increase in accounts payable will cause a plus (and vice versa)
What are the issues with understanding foreign financial statements? -{ Defintions /ANSW}- Foreign
financial statements use international financial reporting standards and they are different from US
accounting standards.
What does cash flow from investing activities measure? -{ Defintions /ANSW}- It measures investments
in long term assets such building, equipment, and machinery.
What does the efficient frontier measure? -{ Defintions /ANSW}- It maximizes expected return for a
given level of risk.
Certified Professional 2023-2024
Discretionary Financing Needed Formula -{ Defintions /ANSW}- Discretionary Financing Needed (DFN) =
Projected Total Asset - Projected Total Liabilities - Projected Equity
Sustainable Growth Rate Formula -{ DEFINTION /ANSW}- Sustainable Growth Rate (SGR) = Return on
Equity (ROE) X (1-Divided Payout Ratio)
Cash Flow from Operating Activities (CFO) Formula -{ Definitions /ANSW}- Cash Flow from Operating
Activities (CFO) = Net Income + Depreciation +/- Decreases/Increases in Current Assets +/-
Increase/Decrease in Current Liabilities
Cash Flow form Investing Activities (CFI) = Change in PPE + Depreciation -{ Defintions /ANSW}- Cash
Flow from Investing Activities (CFI) Formula
Cash Flow from Financing Activities (CFF) Formula -{ Defintions /ANSW}- Cash Flow from Financing
Activities (CFF) = Change in Equity + Change in Long Term Debt - Dividends paid
Gordon Growth Model Formula -{ Defintions /ANSW}- Gordon Growth Model = (Expected Dividend at
end of year)/(Required Rate of Return - Dividend Growth Rate)
Degree of Operating Leverage (DoL) Formula -{ Defintions /ANSW}- Degree of Operating Leverage (DoL)
= (Sales Revenue - Variable Cost)/ Net Income
Annual Percentage Yield (APY) Formula -{ Defintions /ANSW}- Annual Percentage Yield (APY) = (1 + r/n)
(n) - 1
r = stated annual interest rate
N = number of compounding periods.
Income Statement -{ Defintions /ANSW}- Revenues = Amount generated by sale of products and
services
,Expenses = Amount incurred to manufacture products
Income = The difference between revenues and expenses
Balance Sheet -{ Defintions /ANSW}- Assets = Items that are owned by the company
Liabilities = Amounts owed by the company to others
Equity = Invested in the company by shareholders
Income Statement (more details) -{ Defintions /ANSW}- - 1st financial statement every company must
prepare
-use accrual principal for both the revenue and expense
-revenue must be recorded the moment it is delivered to customer (despite receiving payment)
-Expense recorded the moment its incurred
What is included in the income statement and not in the statement of cash flows? -{ Defintions /ANSW}-
Depreciation expense - Necessary to manufacture the product but the company will never pay cash for
it.
-the value goes down
-excluded from statement of cash flows because cash will never be paid for it.
-included in income statement
Statement of Retained Earnings -{ Defintions /ANSW}- It shows how much of the income the company
earns every year is distributed in the form of dividends and how much is retained to grow the business.
A firm reported sales revenue of $100,000 margin (profit margin) of 25% and dividend payment ratio of
10%. The beginning retained earnings was $20,000. What is the ending retained earnings? -
{ Defintions /ANSW}- Ending retained earnings = beginning retained earnings + income earned during
the year - dividend payment = retained earnings
$20,000 + (.25 X 100,000) - (.10 X (.25 X 100,000) = $42,500
, - Dividends are paid out of profit
Balance Sheet Equation -{ Defintions /ANSW}- Assets = Liabilities + Stockholder's Equity
Another equivalent of this is Equity = Assets - Liabilities
Statement of Cash Flows -{ Defintions /ANSW}- - Shows the change in cash balance for a period of time.
Statement of Cash Flows Components -{ Defintions /ANSW}- 1. CFO = Cash Flow from Operating
Activities
2. CFI = Cash Flow from Investing Activities
3. CFF = Cash Flow from Financing Activities
CFO (cash generated and used) Formula reminders -{ Defintions /ANSW}- -current assets aka operating
assets and is usually linked to accounts receivable (AR)
-an increase in accounts receivable will cause a minus
- current liabilities aka operating liabilities and is usually linked to accounts payable (AP)
-an increase in accounts payable will cause a plus (and vice versa)
What are the issues with understanding foreign financial statements? -{ Defintions /ANSW}- Foreign
financial statements use international financial reporting standards and they are different from US
accounting standards.
What does cash flow from investing activities measure? -{ Defintions /ANSW}- It measures investments
in long term assets such building, equipment, and machinery.
What does the efficient frontier measure? -{ Defintions /ANSW}- It maximizes expected return for a
given level of risk.
