Test 101 Flashcards
What is corporate finance?
The area of finance that deals with funding sources, capital structuring, and investment decisions for corporations.
True or False: The primary goal of corporate finance is to maximize shareholder value.
True
Fill in the blank: __________ is the process of determining the value of an asset or company.
Valuation
What does the term ‘capital structure’ refer to?
The mix of a company’s long-term debt and equity financing.
Multiple Choice: Which of the following is NOT a source of financing for a corporation? A) Equity B) Debt C) Revenue D) Grants
C) Revenue
What is meant by ‘working capital’?
The difference between a company’s current assets and current liabilities.
True or False: Debt financing typically requires the company to pay interest.
True
What is an Initial Public Offering (IPO)?
The process through which a private company offers shares to the public for the first time.
Fill in the blank: __________ analysis involves examining financial statements to assess a company’s performance.
Financial
What does ‘return on equity’ (ROE) measure?
The profitability of a company in relation to shareholders’ equity.
Multiple Choice: Which of the following is a type of equity financing? A) Bonds B) Stocks C) Loans D) Mortgages
B) Stocks
What is a dividend?
A distribution of a portion of a company’s earnings to its shareholders.
True or False: A higher debt-to-equity ratio indicates a more leveraged company.
True
What does ‘capital budgeting’ involve?
The process of planning and managing a company’s long-term investments.
Fill in the blank: __________ is the rate of return required to make an investment worthwhile.
Hurdle rate
What is the purpose of a cash flow statement?
To provide a summary of cash inflows and outflows over a specific period.
Multiple Choice: Which financial metric indicates a company’s ability to pay short-term obligations? A) Current Ratio B) Debt Ratio C) Profit Margin D) Return on Assets
A) Current Ratio
What does ‘leverage’ mean in corporate finance?
Using borrowed capital to increase the potential return on investment.
True or False: Equity financing does not require repayment.
True
What is a bond?
A fixed income instrument that represents a loan made by an investor to a borrower.
Fill in the blank: __________ is the practice of spreading investments across various financial instruments to reduce risk.
Diversification
What does ‘cost of capital’ refer to?
The return rate that a company must earn on its investments to satisfy its investors.
Multiple Choice: Which of the following is considered a fixed cost? A) Rent B) Raw Materials C) Sales Commissions D) Utilities
A) Rent
What is a financial ratio?
A quantitative relationship between two financial statement items.
True or False: A company’s market capitalization is calculated by multiplying its share price by the number of outstanding shares.
True
