Fin 320 Exam 1 Review
Shareholders' Equity=
Assets - Liabilities
Time Interest Earned Ratio
EBIT/ Interest
Which one of the following is a capital structure decision
Establishing the preferred debt-equity level
Non-Cash Items
Expenses charged against revenues that do not directly affect cash flow, such as depreciation
Income Statement Equation
Income = Revenues - Expenses
Assets=
Liabilities + Shareholders' Equity
Which one of the following is an advantage of being a limited partner?
Losses limited to capital invested
What is the goal of financial management?
Maximize the current value per share of the existing shock....Maximize the market value of the existing owners; equity.
Which one of the following statements is correct?
NASDAQ has more listed stocks than does the NYSE.
Profit Margin
Net Income / Sales
Return on Equity
Net Income / Total Equity
Return on Assets
Net Income/ Total Assets
Free Cash Flow
another name for cash flow from assets
Net Working Capital
the difference between Current assists and current liabilities
Primary Markets
the original sale of securities by governments and corporations...public offerings and private placement
Secondary Markets
the post sale of securities that are bought and sold after the original sale....dealer markets and auction markets
Liquidity
the speed and ease with which an asset can be converted to cash
The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?
Agency
Beginning in 2011, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires corporations with a market value over ________ to allow a nonbinding shareholder vote on executive pay.
$75,000,000
Earnings Per Share (EPS)
= Net income / Total Shares Outstanding
Dividends Per Share
= Total Dividends / Total shares Outstanding
Cash Flow from assets
= cash flow to creditors + cash flow to stockholder
Corporation
A business created as a distinct legal entity owned by one of more individuals or entires
Partnership
A business formed by two or more individuals or entities
Sole Proprietorship
A business owned by a single individual
Working Capital
A firm's short-trem assets and liabilities
Common-size statement
A standardized financial statement presenting all items in percentage terms. Balance sheet items are shown as a percentage of assets and income statement items as a percentage of sales
Marginal tax rate
Amount of tax payable on the next dollar earned.
Assets
Can be classified as either current or fixed...
Stadford, Inc. is financed with 40 percent debt and 60 percent equity. This mixture of debt and equity is referred to as the firm's:
Capital structure
Operating Cash Flow
Cash generated from a firm's normal business activities
Cash Ratio
Cash/Current Liabilities
Which one of the following is most apt to align management's priorities with shareholders' interests?
Compensating managers with shares of stock that must be held for three years before the shares can be sold
What are the four basic areas of finance?
Corporate Finance, Investments, financial Institutions, International finance
Quick Ratio
Current Assets- Inventory/Current Liabilities
Current Ratio
Current Assets/ Current Liabilities
cash flow to stockholders
Dividends paid out by a firm minus net new equity raised
Three components of Cash flow
Operating Cash Flows, Capital Spending, and Change in Net Working Capital
Which one of the following is contained in the corporate bylaws?
Procedures for electing corporate directors
financial ratios
Relationships determined from a firm's financial information and used for comparison purposes
Valerie bought 200 shares of Able stock today. Able stock has been trading for some time on the NYSE. Valerie's purchase occurred in which market?
Secondary Market
financial ratios are traditionally grouped into:
Short-term solvency, or liquidity ratios Long-term solvency, financial leverage, ratios Asset management, or turnover, ratios Profitability ratios Market Value ratios
Capital budgeting includes the evaluation of which of the following?
Size, timing, and risk of future cash flows
Stakeholder
Someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm
Generally Accepted Accounting Principles (GAAP)
The common set of standards and procedures by which audited financial statements are prepared
Which one of the following correctly defines a common chain of command within a corporation?
The controller reports directly to the chief financial officer.
Capital Structure
The mixture of debt and equity maintained by a firm
Agency Problem
The possibility of conflict of interest between the owners and management of a firm
Capital Budgeting
The process of planning and managing a firms long-term investments
Equity Multiplier
Total Assets / Total Equity, (1 + Debt-equity ratio)
Debt-Equity Ratio
Total Debt / Total Equity
Total debt ratio
Total assets - total equity / Total Assets
Average tax rate
Total taxes paid divided by total taxable income
The daily financial operations of a firm are primarily controlled by managing the:
Working Capital
cash flow to creditors
a firm's interest payments to creditors minus net new borrowings
balance sheet
financial statements showing a firm's accounting value on a particular date
Fixed Asset
fixed asset is one that has a relatively long...tangible...like a truck or a computer....or intangible..such as a trademark or patent.
Current Assets
has a life or less than one year...normally converted to cash within 12 months...inventory is a current asset
An auction market:
has a physical trading floor.
Corporate shareholders:
have the ability to change the corporation's bylaws.
Change in Net Working Capital
investing fixed assets, investing current assets?
Income Statement
measures performance over some peril of time =m usually a quarter or a year..
Net Capital Spending
money spent on fixed assets less money received from the sale of fixed assets
Flat-Rate tax
one tax rate, same for all income rates