financial statements

Question 1

reporting financial statements

Answer 1

corps and individuals need to report their financial results for creditors, investors and governments

Question 2

finance

Answer 2

all activities included in raising and managing financial resources

Question 3

corporate finance

Answer 3

• raising funds through debt, equity or venture capital
• managing those funds for greater efficiency
• reporting on those funds

Question 4

public finance

Answer 4

• determining policies on individual and corp taxation
• developing budgets to allocate funds to various programs
• insuring proper distribution of social programs

Question 5

personal finance

Answer 5

• managing the purchase of various financial products

- the proper management of those funds to ensure long-term viability

Question 6

personal debt in Canadian households (2020)

Answer 6

mortgage: $280,000
non-mortgage: $23,000
credit card debt: $3,000

Question 7

why are some countries so much poorer than Canada?

Answer 7

• the lack of factors of production (natural resources and infrastructures)
• corruption
• difficulty for entrepreneurs to find capital

Question 8

muhammad yunus

Answer 8

economist and pioneer of the concept of micro-credits (microloans) and 2006 Nobler Price winner

Question 9

what do finance managers do?

Answer 9

• plan short and long-term needs
• set strategic goals for growth and expansion
• forecast future revenues and expenses to determine required investment and capital needs
• oversee the raising of capital
• invest extra cash

Question 10

incentives and benefits

Answer 10

comissions and bonuses

stock options

Question 11

perverse effect

Answer 11

managers concentrate on the short-term to benefit themselves over the long-term viability of the company

Question 12

corporate governance

Answer 12

• corporate executives may publish misleading statements
• new laws to hold executives accountable
• strengthen auditors’ and directors’ independence
• disclose relationships with securities and analysts

Question 13

corporations and producers

Answer 13

companies need money to finance business activities

Question 14

savers and investors

Answer 14

people need a place to deposit their savings (returns)

Question 15

financial markets

Answer 15

banks and stock market

connect the corps needs for money with investors’ available savings

Question 16

equity financing: common vs preferred shares

Answer 16

common: right to vote
preferred: dividends, but no right to vote

Question 17

stock market

Answer 17

vehicle through which investors can partake in the profits of the companies for which they are shareholders

• shareholders receive money by either receiving dividends or selling shares
• some level of risk

Question 18

primary market

Answer 18

the first shares go public
initial public offering (IPO)
money goes to the company

Question 19

secondary market

Answer 19

subsequent trading
doesn’t affect the companies’ fiances
reflection of the company’s finances

Question 20

stock exchanges

Answer 20

stocks are traded through exchanges

canada: toronto stock exchange
u. s.: new york stock exchange (1972) and nasdaq (1971)

Question 21

indexes

Answer 21

to get a sense of how the market is doing

• sample of a few companies
• TSX, dow jones industrial average, nasdaq index

Question 22

stock fluctuations

Answer 22

bull: price rising
bear: price falling

Question 23

investors and financial analysts

Answer 23

analysts interpret information about companies to make recs to investors

Question 24

lenders and vendors

Answer 24

use financial information to determine if the firm is expected to make good loans

Question 25

management

Answer 25

use financial information to pinpoint strengths and weaknesses in operations

Question 26

sources of financial information

Answer 26

annual report (positive light) 
brokerage firms and investment services

Question 27

the annual report

Answer 27

letter to shareholders
management discussion and analysis
audited financial statements
notes to financial statements

Question 28

financial statements

Answer 28

income statement (sales, cogs, expenses, etc.)
balance sheet (assets, liabilities and equity)
cash flow statement

Question 29

types of operating expenses

Answer 29

selling expenses: payroll and benefits of sales staff, advertising, sales, etc.
general and administrative: payroll and benefits of administrative staff, insurance, depreciation of office equipment, etc.
amortization/ depreciation: paying off debt by payments

Question 30

statement of cash flow

Answer 30

shows cash inflow or outflow from three different activities (investing, financing and operating)

Question 31

investing activities

Answer 31

all activities dealing with the acquisition or sale of capital assets
- purchasing or selling capital and long-term assets

Question 32

financing activities

Answer 32

all activities dealing with the securing of funds

- borrowing money, selling shares, repaying bonds and loans, repurchasing shares, paying dividends, etc.

Question 33

operating activities

Answer 33

all activities dealing with day-to-day activities

- cash sales, collecting credit sales, buying inventory, etc.

Question 34

constructing the statement of cash flow

Answer 34

the cash account: sum of cash flows from operating, financing and investing activities must equal the change in cash flow

Question 35

the cash flow that comes from operating activities should be used to

Answer 35

• replace equipment or other capital assets that need to be modernized
• invest in various areas to make sure the firm remains competitive
• pay dividends

Question 36

extra cash (free cash flow)

Answer 36

allows a firm to aggressively develop new business opportunities