Leverage, Risk, and Self-Financing Strategies
Item 10: Leverage and Risk
Break-Even Point
The break-even point helps us determine the sales level needed to cover all costs. It also reveals the potential loss of sales or profits when considering alternative balance sheet values.
There are two types of costs:
- Fixed costs: These are independent of production volume.
- Variable costs: These vary directly with the volume of production.
The break-even point in units (Q) is calculated as:
Q = Fixed Costs
Price – Variable Costs
Operating Leverage
Operating leverage
Read MoreInternational Finance: Markets, Risks, and Strategies
Chapter 1: Multinational Enterprises and Globalization
A Multinational Enterprise (MNE) has operating subsidiaries, branches, or affiliates located in foreign countries.
Globalization is the process of producing where it is most cost-effective, selling where it is most profitable, and sourcing capital where it is cheapest, without worrying about national borders.
Transnational refers to companies with widely dispersed ownership.
Domestic Firms’ International Activities
- Import and export of products,
Accounting and Finance Practice Questions
- TRUE
- $23,000
Net Income and Financial Statements
Net income (loss) appears in which two financial statements?
Income Statement and Statement of Stockholders’ Equity
Financial Statement Over Company’s Life
The financial statement that represents activity over the entire life of a company is:
Balance Sheet
Capital Expenditure Example
Adding a refrigeration unit to a delivery truck that previously did not have this capability is an example of:
Additions
Land Purchase Cost Calculation
Cowboy Development incurred
Understanding Interbank Clearing and Foreign Exchange
Interbank Clearing Systems
The interbank clearing system facilitates transactions between banks. Current systems often allow for the detention of effects without requiring the submission of paper documents, thanks to computer processes. This is known as truncation or elimination of paper documents or magnetic computer keys.
The National Electronic Clearing System (NECS) streamlines the compensation of documents and payments, including transfers, money orders, debits, and standing orders. This system
Read MoreUnderstanding Spain’s Balance of Payments
The balance of payments (BoP) measures transactions between residents and non-residents. These measurements are made on an annual basis. The institution in charge of making the measure is the Bank of Spain, following the directions of the Sixth Edition of the Balance of Payments and International Investment Position Manual (BPM6) of the International Monetary Fund.
Components of the Balance of Payments
- Credits: Exports of goods and services, income receivable, reduction in assets, or increase in liabilities.
Key Formulas and Concepts in International Finance
Formulas
GDP = GDI
GNI = GDI + Resident’s Net Factor Income from Abroad
%Δ in Foreign Currency Value = [(1/S1) – (1/S0)] / (1/S0)
%Δ in Value of Dollar = (S1-S0)/S0
Bilateral RER = (Foreign Currency / Domestic Currency) / (Pfor / Pdom)
The %Δ in the Real Exchange Rate = %Δ in the Nominal Exchange Rate – the Inflation Differential (from US perspective means US on the bottom or second in the subtraction equation)
Current Account = X-M
Trade Balance (X-M) + Services Balance + Net Factor Income from Abroad
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