FINC 318 Test 1 – Flashcards
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Common-size financial statements present all balance sheet account values as a percentage of:
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Total Assets
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The DuPont identity can be totally defined by which one of the following?
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Equity Multiplier and Return on Assets
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Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?
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Internal growth rate
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The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions?
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No new equity and a constant debt-equity ratio
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Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes?
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Balance sheet
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A firm has a current ratio of 1.4 and a quick ratio of 0.9. Given this, you know for certain that the firm:
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has more cash than inventory.
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Fred is the owner of a local feed store. Which one of the following ratios should he compute if he wants to know how long the store can pay its bills given the amount of cash the store currently has
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Cash ratio
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Which one of the following is a measure of long-term solvency
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Equity multiplier
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The cash coverage ratio is used to evaluate the:
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speed at which a firm generates cash.
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Kelso's Pharmacy generates $2 in sales for every $1 the firm has invested in total assets. Which one of the following ratios would reflect this relationship?
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Return on assets
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You would like to borrow money three years from now to build a new building. In preparation for applying for that loan, you are in the process of developing target ratios for your firm. Which set of ratios represents the best target mix considering that you want to obtain outside financing in the relatively near future?
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Cash coverage ratio = 2.6; debt-equity ratio = 0.3
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The DuPont identity can be used to help a financial manager determine the: I. degree of financial leverage used by a firm. II. operating efficiency of a firm. III. utilization rate of a firm's assets. IV. rate of return on a firm's assets.
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I, II, and III only
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Balance Sheet Assets
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Current Assets Cash Accounts Receivable Inventory Total Fixed Assets Net Fixed Assets
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Balance Sheet Liabilities
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Current Liabilities Accounts Payable Notes Payable Total Long Term Debt Owner's Equity Common Stock & Paid in Surplus Retained Earnings Total Liabilities and Owner's Equity
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Income Statement
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Net Sales Cost of Goods Sold Depreciation Earnings Before Interest and Taxes Interest Paid Taxable Income Taxes Net Income Dividends Addition to Retained Earnings
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Net working capital is defined as:
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current assets minus current liabilities.
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The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the
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income statement
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The financial statement that summarizes a firm's accounting value as of a particular date is called the:
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balance sheet
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Which one of the following terms is defined as the total tax paid divided by the total taxable income
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Average tax rate
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Which one of the following is the tax rate that applies to the next dollar of taxable income that a firm earns?
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Marginal tax rate
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Cash flow from assets is defined as
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operating cash flow minus net capital spending minus the change in net working capital
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Operating cash flow is defined as
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a firm's operating margin
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Which one of the following has nearly the same meaning as free cash flow
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Cash flow from assets
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Cash flow to creditors is defined as:
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interest paid minus net new borrowing.
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Cash flow to stockholders is defined as:
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operating cash flow minus cash flow to creditors.
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Which one of the following is an intangible fixed asset
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Copyright
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Which one of the following is included in net working capital
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Equipment
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Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital:
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had to decrease
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Tim has been promoted and is now in charge of all fixed asset purchases. In other words, Tim is in charge of:
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capital budgeting
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Stadford, Inc. is financed with 40 percent debt and 60 percent equity. This mixture of debt and equity is referred to as the firm's:
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capital structure.
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Lester's BBQ has $121,000 in current assets and $109,000 in current liabilities. These values as referred to as the firm's:
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working capital
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Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts?
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Sole proprietorship
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Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50-50 basis. Which type of entity did they create if they have no personal liability for the firm's debts?
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Corporation
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The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?
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Agency
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The federal government has a tax claim on the cash flows of The Window Store. This claim is defined as a claim by one of the firm's:
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Stakeholders.
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Which one of the following occupations best fits into the international area of finance?
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Currency trader
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Which of the following individuals commonly use finance in the course of their job? I. Chief financial officers II. Accountants III. Security analysts IV. Strategic managers
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I, II, III, and IV
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Which one of the following is a working capital decision?
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How much cash should the firm keep in reserve?
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Which one of the following is a capital structure decision?
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Establishing the preferred debt-equity level
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Working capital management includes which one of the following?
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Determining which customers will be granted credit
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The daily financial operations of a firm are primarily controlled by managing the:
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working capital
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A sole proprietorship
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has its profits taxed as personal income.
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Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?
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Limited partnership
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The primary goal of financial management is to maximize which one of the following for a corporation?
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Market value of existing stock
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Which one of the following best matches the primary goal of financial management?
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Increasing the market value of the firm
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The goal of financial management is to increase the:
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current market value per share.
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What is the goal of financial management for a sole proprietorship?
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Maximize the market value of the equity
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Which one of the following situations is most apt to create an agency conflict?
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Rejecting a profitable project to protect employee jobs
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Which one of the following is most apt to create a situation where an agency conflict could arise?
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Separating management from ownership
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Which one of the following is most apt to align management's priorities with shareholders' interests?
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Compensating managers with shares of stock that must be held for three years before the shares can be sold
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Marti had an unexpected surprise when she ate her Lotsa Good cereal this morning. She found a piece of metal mixed in her cereal. The potential claim that Marti has against this firm is that of a(n):
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stakeholder.
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Which one of the following transactions occurred in the primary market?
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South Wind Products sold 1,000 shares of newly issued stock to Mike.
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Valerie bought 200 shares of Able stock today. Able stock has been trading for some time on the NYSE. Valerie's purchase occurred in which market?
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Secondary market
