World War I Aftermath and the 1929 Economic Crisis
War Debts and Economic Problems After World War I
War debts were debts incurred by countries involved in the conflict during the First World War. Reparations were payments for the destruction caused by the war. Germany was the country most affected by the policy of compensation.
- Consumer goods: These are goods that have a shelf life longer than one year and are demanded by economic agents.
- Inflation: This is the increase in property prices and services.
- Speculative bubble: This is a market situation
Financial Analysis: Income, Profitability, and Returns
Economic Analysis: Results and Profitability
Analysis of Income
The income statement is the profit and loss account (P & L).
Sales: Total income from economic activity.
– Cost of Sales: Variable costs to make, buy, distribute, and sell products.
= Gross Margin
– Fixed Costs: Structural costs that do not depend on the level of activity.
= Earnings Before Interest and Taxes (EBIT)
+– Financial: Difference between income and financial expenses.
= Profit Before Tax (PBT)
– Income Tax: Corporation tax or equivalent.
Read MoreEconomic Impacts of Savings, Labor Reform, and Monetary Policy
Economic Impacts of Increased Savings
An increase in household’s marginal propensity to save leads to a negative demand shock. As households save more, consumption decreases, causing a decline in production and slowing the economy. The IS curve shifts left. Lower production leads to fewer jobs, increasing unemployment, and decreasing inflation. Falling inflation raises the real interest rate, risking deflation.
To prevent deflation, the central bank should reduce the nominal interest rate, lowering
Read MoreUnderstanding Inflation and Financial Assets
Inflation Rates
Depending on the intensity of inflation, the following can be distinguished:
- Moderate Inflation: Characterized by a slight increase in prices, with an inflation rate below 10%, typically between 2% and 3%. This is common in most developed countries.
- Runaway Inflation: Occurs when the rise in prices is between 10% and 100% annually.
- Hyperinflation: Defined by prices rising over 100% in a year. It results in a loss of control over prices and the collapse of the monetary system, rendering
Key Terms in Business Finance and Credit Management
**Credit Standards**
Credit standards refer to a firm’s minimum requirements for extending credit to a customer.
**5 C’s of Credit**
The 5 C’s of Credit are five key dimensions used to assess creditworthiness:
- Character
- Capacity
- Capital
- Collateral
- Conditions
**Credit Scoring**
Credit scoring is a credit selection method commonly used with high-volume credit requests.
**Aging Schedule**
An aging schedule is a credit monitoring technique that categorizes accounts receivable into groups based on their time of
Read MoreIncremental Cash Flows and Operating Cash Flow in Capital Budgeting
CH9 Slides: Discounted Incremental Cash Flows
Incremental cash flow = Cash flow with project – Cash flow without project
Would the cash flow still exist if the project did not exist?
- If yes, do not include it in your analysis.
- If no, include it.
Incremental Cash Flow
Include all indirect effects – positive and negative side effects.
Example: Producing a new economy car will generate more profitable future sales as customers become attached to your brand – a positive side effect.
Example: Developing a
Read More