Economic Factors Flashcards
Increasing consumer demand for goods and services, increasing industrial production, and rising stock markets and property values is known as ______ in the business cycle
Expansion
_______ ratio is computed by dividing current assets by current liabilities.
Current ratio
Current assets include cash, accounts receivable, and inventory.
Current liabilities include accounts payable, wages payable, dividends payable, and short-term debt.
When an analyst subtracts the inventory from a company’s current assets and divides the remainder by the current liabilities, the result is the ____ ratio
Quick Ratio (Acid Test Ratio)
The quick ratio, sometimes called the acid-test ratio, is computed by taking a company’s current assets minus the inventory and then dividing that by the current liabilities.
Issuance of which of the following would most likely increase the leverage in a company’s capital structure?
A) warrants.
B) preferred stock.
C) bonds.
D) common stock.
C) bonds.
Leverage is the use of borrowed money. This is reflected in a company’s debt to equity ratio. Of these choices, the only one that is borrowed money is the bonds.
________ industries are least affected by normal business cycles. Companies in this industry generally produce nondurable consumer goods, such as food, pharmaceuticals, tobacco, and energy. Public consumption of such goods remains fairly steady throughout the business cycle. During recessions and bear markets, stocks in this industry generally decline less than stocks in other industries.
Defensive
Working capital is: ______ - _______
Current Assets - Current Liabilities
Current means cash or assets that would be exchanged for cash in the ordinary course of business in the current year. In the case of liabilities, current means maturing or falling due within the current year. The net of current assets less the current liabilities implies the company has cash availability of the remainder with which to work.
However, the debt/equity ratio is a ________ ratio and measures the amount of leverage compared to equity in a company’s overall capital structure.
capitalization
The real rate of interest is the________ rate minus the inflation rate.
nominal
Banks charge a nominal rate rather than a real interest rate. The nominal rate of interest measures the time value of money plus investors’ expectations about future prices or inflation. The best known use of the term “nominal rate” is a bond’s coupon rate. When an issuer borrows money, the rate is determined by these factors plus the issuer’s credit rating.
The ______ ratio would be looked at to determine the liquidity of a corporation?
Current ratio
A company’s current ratio is their current assets divided by their current liabilities. If their current ratio is strong, they have a highly liquid position.
When a company’s debt to equity ratio is higher than typical for that industry, it might be said that the company is:
highly leveraged
The definition of a leverage is the use of borrowed money in the issuer’s capital structure. This is seen through the debt to equity ratio. When that ratio is higher than industry standards, it is said that the company is highly leveraged.
