FIN 1 & 2 Flashcards
The sources and uses of cash over a stated period of time are reflected on the:
Statement of Cash Flows
A common-size income statement is an accounting statement that expresses all of a firm’s expenses as a percentage of:
Sales
On a common-size balance sheet, all accounts for the current year are expressed as a percentage of:
Total Assets for the Current Year
All of the following issues represent problems encountered when comparing the financial statements of 2 separate entities except the issues of the companies:
- being conglomerates with unrelated lines of business
- having geographically varying operations
- using differing accounting methods
- differing seasonal peaks
- having the same fiscal year
having the same fiscal year
An increase in which of the following will increase a firm’s quick ratio without affecting its cash ratio?
Accounts Receivable
Ratios that measure a firm’s liquidity are known as _____ ratios.
Short-Term Solvency
Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.
Profitability
Which of these identifies the relationship between the return on assets and return on equity?
- Profit Margin
- Profitability determinant
- Balance sheet multiplier
- DuPont Identity
- Debt-equity ratio
DuPont Identity
What 3 things describe the DuPont Identity?
- Equity Multiplier (financial leverage)
- Profit Margin (operating efficiency)
- Total Asset Turnover (asset use efficiency)
If a company produces a return on assets of 14 percent and also a return on equity of 14 percent, then the firm:
has an equity multiplier of 1
An increase in which of the following must increase the return on equity, all else constant?
- Total assets & sales
- Net income and total equity
- Total asset turnover and debt-equity ratio
- Equity multiplier and total equity
- Debt-equity ratio and total debt
Total asset turnover and debt-equity ratio
Increase TOTAL ASSET TURNOVER & DEBT/EQUITY RATIO …. Increase RETURN ON EQUITY
DuPont Identity can be used to help managers answer which of the following questions related to a company’s operations?
- How many sales dollars are being generated per each dollar of assets?
- How many dollars of assets have been acquired per each dollar in shareholder’s equity?
- How much net profit is being generated per dollar of sales?
- Does the company have the ability to meet its debt obligations in a timely manner?
1, 2, 3
Which of the following will decrease if a firm can decrease its operating costs, all else constant?
- Return on equity
- Return on assets
- Profit margin
- Total asset turnover
- Price-earnings ratio
Price-earnings ratio
Decrease OPERATING COSTS …. Decrease PRICE-EARNINGS RATIO
The price-earnings ratio is especially useful when analyzing firms that have:
Negative earnings
You are investing $100 today in a savings account. Which one of the following refers to the total value of this investment one year from now?
- Future Value
- Present Value
- Principal amount
- Discounted Value
- Invested Principal
Future Value
Leaving interest earnings in an account, which increases the amount of interest you earn each year
Compounding
Interest earned on reinvestment of previous interest
Interest on Interest
Interest earned on both initial principal and the interest reinvested from prior periods
Compound Interest
The current value of future cash flows discounted at the appropriate discount rate
Present Value
Terry is calculating the present value of a bonus he will receive next year. The process he is using is called:
Discounting
Steve just computed the present value of a $10,000 bonus he will receive next year. The interest rate he used in his computation is referred to as:
Discount rate
Process of determining the present value of future cash flows in order to know their value today:
Discounted Cash Flow Valuation
Your goal is to have $1 million in your retirement savings on the day you retire. To fund this goal, you’ll need to make one lump sum deposit today. If you plan to retire ____ rather than _____ and earn a _____ rate of interest, then you can deposit a smaller lump sum today.
later, sooner, high
Which of the following will produce the lowest present value interest factor?
- 6 % for 5 years
- 6% for 8 years
- 6% for 10 years
- 8% for 5 years
- 8% for 10 years
8% for 10 years
Longest Time
Highest Interest = Lowest PV Interest Factor
