CAPITAL MARKET FINALS

Question 1

This involves the analysis of the economic environment where the business operates. This is necessary because the ability of a business to thrive is affected by various external factors, such as economic climate, competition, demand and supply, market rates. government technological changes, and the like.

Answer 1

Industry and economic trend

Question 2

is a process of evaluating and interpreting an entity’s financial statements to assess its financial health for the purpose of making better economic decisions.

Answer 2

Financial statement analysis

Question 3

refers to the ability of the business to pay its debts and remain as a going concern. Solvency can be short-term (liquidity) or long-term (solvency).

Answer 3

Solvency

Question 4

refers to how a business efficiently finances its operations using different sources of funds, such as debt or equity. Solvency and capital structure relates to the stability of a business.

Answer 4

Capital structure

Question 5

refers to how well a business is managing 11% resources to maximize earnings.

Answer 5

Operational efficiency

Question 6

refers to the ability of the business to generate profit.

Answer 6

Profitability

Question 7

is the comparison of financial informati over two or more reporting periods. The purpose is to analyze changes in amounts are unusually high or low, which may entst investigation of the reason for the unusual change.

Answer 7

Horizontal analysis

Question 8

involves the analysis of the financial statements of one reporting period. It is a proportional analysis whereby each amount in the financial statements is shown a percentage of another item.

Answer 8

Vertical analysis

Question 9

A variation to the horizontal analysis is ___Under a trend analysis, the comparison of financial information extends beyond two periods, normally five or more. The computational procedures in a trend analysis are similar to a horizontal analysis.

Answer 9

Trend analysis

Question 10

the most commonly used ratio in measuring the ability of a business to pay its short-term debts.

Answer 10

Current ratio

Question 11

provide a measure of the ability of a business to pay its liabilities.

Answer 11

Liquidity ratios

Question 12

a much stricter ratio used to measure the ability of a business to pay its short-term debts.

Answer 12

Quick ratio (Acid-test ratio)

Question 13

similar to current ratio but measures the ability of a business to pay its short-term debts by the excess or deficiency of current assets over current liabilities.

Answer 13

Working capital

Question 14

• provide a measure of how efficient a business is utilizing its resources.

Answer 14

Activity ratios (Asset management ratios)

Question 15

is a measure of the number of times inventory is sold and replenished during a period. Generally, the higher the ratio, the better. However, an unusually high inventory turnover could also indicate inventory shortages due to shortage in raw materials, production inefficiency, underinvestment, poor inventory planning, and loss of sales.

Answer 15

Inventory turnover

Question 16

is a measure of the number of days inventory is held before it is sold.

Answer 16

Days of inventory (Average sale period)

Question 17

is a measure of the number of times accounts receivable have been collected during a period. It is an indication of the efficiency in collection.

Answer 17

Accounts receivable turnover

Question 18

• is a of the average time to collect a receivable.

Answer 18

Days of receivable (Average collection period)

Question 19

provide a measure of the extent a business uses debt financing or “leverage.”

Answer 19

Leverage ratios (Debt management ratios)

Question 20

proportion of assets financed through debt.

Answer 20

Debt ratio (Debt-to-asset ratio)

Question 21

• measures the proportion of assets financed equity.

Answer 21

Equity ratio

Question 22

indicates how much debt is used to finance the assets relative to the amount pertaining to the owner(s).

Answer 22

Debt-to-equity ratio -

Question 23

provide a measure of the performance of a business in terms of its ability to generate profit from its resources.

Answer 23

Profitability ratios

Question 24

shows the relationship between sales and cost of goods sold.

Answer 24

Gross profit ratio -

Question 25

• measures profitability after considering all income and expenses.

Answer 25

Net profit ratio

Question 26

measures the profit generated in relation to the total resources available to the business.

Answer 26

Return on assets

Question 27

• measures the generated in relation to the resources inve by ( attributable to) the owner(s) of the business.

Answer 27

Return on equity (Return on net assets)