Exam 1: Chapter 1-5 Flashcards
What are the determinants of a firms probability and growth?
- Profit Margin: Operation efficiency
- Total Asset Turnover: Asset use efficiency
- Financial leverage: Choice of optimal debt ratio
- Dividend Policy: Choice of how much to pay shareholders vs. reinvesting in the firm.
What is perpetuity?
Perpetuity is an infinite series of equal payments that continue indefinitely
What is annuity?
Annuity is a finite series of equal payments that has a specific end date
What is the difference between annuity and perpetuity?
A perpetuity is an infinite series of equal payments that continue indefinitely. It is different from an annuity, which has a finite number of payments. Perpetuities have no end date, while annuities have a specific end date
What is annual annuity?
When the first payment occurs at the beginning of the period
What is ordinary annuity?
When the first payments occurs at the end of the period
What are some problems and pitfalls in financial statement analysis?
- Conglomerates
a. Lack of readily available comparable - Global competitors
- Different accounting procedures
- Different fiscal year ends
- Differences in capital structure
- Seasonal variation and one-time events
What is dividend policy?
The decision-making process of a company in determining how much of its earnings should be distributed to shareholders as dividends and how much should be retained for reinvestment in the firm
What does financial leverage refer to?
It refers to the use of debt to finance a company’s operations and investments, and it involves finding the optimal debt ratio that maximizes the company’s value
What is total asset turnover?
Total asset turnover is a measure of a company’s efficiency in using its assets to generate revenue.
What is profit margin?
Profit margin is a measure of a company’s profitability
What is the role of a financial manager
The financial manager is responsible for making decisions regarding long-term investments, obtaining financing for those investments, and managing the day-to-day financial activities of the firm
What are the 4 common ratios
- Current Ratio: Used to asses a company’s short term liquidity
- Debt-to-equity: To measure a company’s financial leverage
- Gross profit margin: To evaluate a company’s profitability
- Return of equity: To asses the return generated for shareholders’ investment
What are Standardized Financial statements useful for?
- Comparing financial information year-to-year
- Comparing companies of different sizes within the same industry
What does Standardized Financial Statements involve?
Adjusting the financial data to make them comparable across different time periods or companies