Final Exam #3

According to Githens, business metrics measure something important that includes relevance, is controllable, and is part of lean measurement.

t

As the contribution margin rises, the breakeven point goes down.

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Enterprise Value (EV) is calculated in part by adding a corporation's market capitalization, preferred stock, and outstanding debt.

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Forecasting techniques can involve qualitative, quantitative, or both methods.

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If a company reports revenues of $17,000 and expenses of $12,000, then net income equals $5,000

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If a company's return on assets is substantially higher than its cost of borrowing, then the common stockholders would normally want the company to have a relatively high debt/equity ratio.

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In an accrual accounting system, the amount of revenue a company recognizes on the income statement differs from the amount of cash collected from customers.

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Motivations for capital budgeting investments may include replacement, expansion, or modernization.

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Profitability ratios attempt to assess the company's ability to generate earnings.

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Return on assets and return on equity are both profitability ratios.

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Return on assets will always be greater than or equal to return on equity.

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The Patton Risk Model provides the techniques to avoid, reduce, retain, or transfer when considering risk management solutions.

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The return on equity ratio may be either higher or lower than the return on assets ratio.

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When calculating return on assets, the numerator is net income.

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Working capital is the excess of current assets over current liabilities.

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Vanity Metrics are worth your time investment and valuable to positive decision making.

f

Most companies use the contribution approach in preparing financial statements for external reporting purposes

f

On a graph that represents cost behavior for a profitable company, the total expense line will be steeper than the total revenue line

f

At the break-even point, variable expenses and fixed expenses are equal.

f

The lower the current ratio, the more liquid the company appears.

f