Exam 1 Flashcards
The primary goal of financial management is to:
Maximize the current value of owner’s equity.
Which of the following statements is correct regarding ratio analysis?
A single ratio is often computed differently by different individuals.
In the primary equity market, the _____ receives the final proceeds from the sale of stock:
issuer
Cecelia has a successful book store, which she and her husband have run for 30 years and is organized as a sole proprietorship. Cecelia and her husband are considering retirement but none of their children want to go into the book business. Which of the following would be the best course of action for Cecelia?
Contact a broker and try to sell the business and its goodwill.
You are on the board of Tyms Corp. and you are reviewing the financial ratios provided by the CFO. Last quarter the payables turnover was 13 and this quarter it has dropped to 10. What should you do?
Ask for an explanation of why the payables turnover number changed from 13 to 10.
- Tom and Dulcie are studying. They are looking at a company whose Accounts Receivable went from $60,000 at the end of 2005 to $85,000 at the end of 2006. Tom says that this is a source of cash and Dulcie says it is a use of cash. Which of the following is true?
Dulcie is right because more money is tied up in customer balances and this reduces the company’s available cash.
Competitive Company has a balance of $490,000 in the Paid in Surplus (Capital Surplus, Paid in Capital) Account. Which of the following can be inferred from this?
At some time, Competitive Company stock was sold at a price in excess of par value.
XYZ Company had a negative net capital spending for 2006. The most likely explanation for this number being negative is:
XYZ sold many fixed assets during the year.
Which of the following is true?
The retention ratio plus the dividend payout ratio equals one.
Which of the following is FALSE about corporate taxes?
The average tax rate is equal to the marginal tax rate.
Which of the following explains what it means to have a Days Sales in Inventory figure of 45?
A unit of inventory sits on the shelf an average of 45 days before being sold.
Your boss asks you to collect data and compute as many ratios as you can on your three closest competitors, then prepare a report comparing them to the ratios of your own company. This kind of activity is called
Common base year comparison.
The concept “Assets must be equal to Liabilities plus Owner’s Equity” is called
The Balance Sheet Identity
The phrase, “Financial plans don’t work, but financial planning does.” Means that
Financial plans are quickly outdated and of limited use, but the process of financial planning is valuable for a number of reasons.
All of the following are are components of the financial planning model EXCEPT one. Which one?
Net Working Captial
