Module 2

Question 1

What are the Key Financial Statements?

Answer 1

Income Statement
Balance Sheet
Statement of Retained Earnings
Statement of Cash Flows

Question 2

The ____ provides a financial summary during a specified period.

Answer 2

Income Statement

Question 3

The Operating Profit is often called

Answer 3

Earning Before Interest or EBIT

Question 4

The actual cash ____ is the dollar amount of cash distributed during the period on behalf of each outstanding share of common stock.

Answer 4

Dividends per share

Question 5

____ represents the number of dollars earned during the period on behalf of each outstanding share of common stock.

Answer 5

Earnings per share or EPS

Question 6

The ____ presents a summary of the firm’s financial positions at a given time.

Answer 6

Balance Sheet

Question 7

_____ short term assets, expected to be convertec into cash within 1 year or less.

Answer 7

Current Asset

Question 8

____ short term liabilities, expected to be paid within 1 year or less.

Answer 8

Current liabilities

Question 9

____ are very liquid short-term investments such as Treasury bills or certificates of deposit, held by the firm.

Answer 9

Marketable securities

Question 10

_____ are viewed as a form of cash (“near cash”).

Answer 10

Marketable Securities

Question 11

____ represent the total monies owed the firm by its customers on credit sales.

Answer 11

Accounts receivable

Question 12

____ include raw materials, work in process (partially finished goods), and finished goods held by the firm.

Answer 12

Inventories

Question 13

The entry for _____ is the original cost of all fixed (long-term) assets owned by the firm.

Answer 13

Gross fixed assets

Question 14

_____ represents the difference between gross fixed assets and accumulated depreciation

Answer 14

Net fixed assets

Question 15

the net
value of fixed assets is called their _____

Answer 15

book value

Question 16

_____ represents for which payment is not due in the current year.

Answer 16

Long-term debt

Question 17

_____ represents the owner’s claims on the firm.

Answer 17

Stockholder’s equity

Question 18

the ____ entry shows the historical proceed from the sale of ____.

Answer 18

preferred stock

Question 19

_____ represent the cumulative total of all earnings, net of dividends that have been retained and reinvested in the firm since its inception.

Answer 19

Retained Earnings

Question 20

The ____ is an abbreviated form of statement of the statement of stockholder’s equity.

Answer 20

Statement of Retained Earnings

Question 21

The _____ is a summary of the cash flows over the period of concern.

Answer 21

Statement of Cash Flows

Question 22

the analysis of financial statements is based on the use of ___ or _____.

Answer 22

ratios
relative values

Question 23

_____ involves methods of calculating and interpreting financial ratios to analyze and monitor the firm’s performance.

Answer 23

Ratio analysis

Question 24

ratios are measured as _____, _____, _____.

Answer 24

percentage
Times or multiplez
Number of days

Question 25

Ratio analysis of a firm’s financial statements is of interest to:

Answer 25

Shareholders Prospective inventors Creditors Firm’s own management

Question 26

_____ involves the comparison of different firms’ financial ratios at the same point in time.

Answer 26

Cross-Sectional Analysis

Question 27

This type of ____ is called benchmarking.

Answer 27

cross-sectional analysis

Question 28

____ evaluates performance over time.

Answer 28

Time-series Analysis

Question 29

The most informative approach to ratio analysis that combines cross-sectional and time-series analysis.

Answer 29

Combined Analysis

Question 30

The ____ of a firm is measured by its ability to satisfy its short term obligations as they come due.

Answer 30

Liquidity

Question 31

____ refers to the solvency of the firm’s overall financial position— the ease with which it can pay its bills.

Answer 31

Liquidity

Question 32

the ____, one of the most commonly cited financial ratios, measured the firm’s ability to meet its short term obligations.

Answer 32

Current Ratio

Question 33

the _____ is similar to the current ratio except that it excludes inventory, which is generally the least liquid current asset.

Answer 33

Quick (acid-test) ratio

Question 34

the dept position of a firm indicates the amount of other people’s money being used to ____

Answer 34

generate profits

Question 35

_____ is the magnification of risk and return through the use of fixed-cost, such as debt and preferred stock.

Answer 35

Financial Leverage

Question 36

what are the general types of debt measures?

Answer 36

Degree of Indebtedness Ability to service debt

Question 37

____ measures the amount of debt relative to other significant balance sheet amounts.

Answer 37

Degree of Indebtedness

Question 38

____ reflects a firm’s ability to make the payments required on a scheduled basis over the life of a debt.

Answer 38

Ability to service debts

Question 39

the term to _____ simply means to pay debts on time.

Answer 39

Service debts

Question 40

the firm’s ability to pay certain fixed charges is measured using ____

Answer 40

Coverage ratios

Question 41

the ____ measures the proportion of total assets financed by the firm’s creditors.

Answer 41

Debt Ratio

Question 42

the _____, sometimes called interest coverage ratio, measures the firm’s ability to make contractual interest payments.

Answer 42

Times interest earned ratio

Question 43

the ____ measures the firm’s ability to meet all fixed payment obligations.

Answer 43

Fixed-payment coverage ratio

Question 44

These measures enable analysts to evaluate the firm’s profits with respect to a given level of sales.

Answer 44

Profitability Ratios

Question 45

a useful tool for evaluating profitability in relation to sales is the ____.

Answer 45

Common-size income statement.

Question 46

the _____ measures the percentage of each sales dollar remaining after the firm has paid for its goods.

Answer 46

gross profit margin

Question 47

the _____ measures the percentage of each sales dollar remaining after all costs and expenses other than interest, taxes, and preferred stock dividends are deducted.

Answer 47

Operating Profit Margin

Question 48

the ____ measures the percentage of each sales dollar remaining after all costs and expenses, including interest, taxes, and preferred stock dividends, have been deducted.

Answer 48

Net Profit Margin

Question 49

the firm’s _____ is generally of interest to present or prospective stockholders and management.

Answer 49

Earnings per share

Question 50

The dollar anount of cash actually distributed to each shareholder is the _____.

Answer 50

Dividend per share

Question 51

the return on total assets (ROA) often called the _____

Answer 51

Return of Investment (ROI)

Question 52

the ____ often called the return on investment (ROI) measures the overall effectives of management in generating profits with its available assets.

Answer 52

Return on Total Assets

Question 53

the ____ measures the return earned on the common stockholders’ investment in the firm.

Answer 53

Return on common equity

Question 54

____ relate the firm’s market value, as measured by its current share price to certain accounting values.

Answer 54

Market Ratios

Question 55

The ____ is commonly used to assess the owners’ appraidal of share value.

Answer 55

Price/Earning (P/E) Ratio

Question 56

the ____ measures the amount that investors are willing to pay for each dollar of a firm’s earnings.

Answer 56

(P/E) ratio

Question 57

the ____ provides an assessment of how investors view the firm’s performance.

Answer 57

market/book (M/B) ratio

Question 58

A higher Current ratio indicates a greater degree of _______

Answer 58

liquidity