FIN 3403 Exam 1 (me)

A balance sheet reflects a firm's ______ value on a particular date.

accounting

Because we are almost always unable to obtain all of the market information we want, we rely on ______ numbers for much of our financial information.

accounting

A customer has yet to pay the bill for products purchased on credit. The seller records this debt in which balance sheet account?

accounts recievable

In the long run, ________ are variable.

all costs

Which one of the following represents what a firm owns at a given point in time?

assets

A useful way of standardizing financial statements is to choose a ____ and then express each item relative to the _____. Multiple choice question.

base year, base amount

On the balance sheet, assets are listed at their _____ value.

book

Under GAAP, U.S. firms must carry assets at:

book value

At the most fundamental level, firms generate _______ and spend it.

cash

Noncash items do not affect _____.

cash flow

The total of cash flow to creditors and cash flow to stockholders is called _____.

cash flow from assets

When combining common-size and common-base year analysis, the effect of overall growth in assets can be eliminated by first forming the:

common size statements

The quick ratio is computed just like the _____ ratio, except that inventory is omitted.

current

The current ratio shows the relationship between ____.

current assets and current liabilities

Net working capital equals

current assets minus current liabilities.

A long-term liability represents a(n) _____.

debt that is not due in the coming year

The more debt a firm has, the greater its:

degree of financial leverage

A systematic expensing of an asset based on the asset's estimated life

depreciation

Cash flow to stockholders is defined as:

dividends paid minus net equity raised

Cash flow to stockholders equals:

dividends paid minus net new equity raised

Cash flow to stockholders equals:

dividends paid minus net new equity raised.

Dividends Per Share (DPS)

dividends/shares outstanding

A times interest earned (TIE) ratio of 3.5 times means a firm has _____ that is(are) 3.5 times greater than the firm's interest expense. Multiple choice question.

earnings before interest and taxes

Net capital spending is equal to

ending net fixed assets minus beginning net fixed assets plus depreciation

Net capital spending is equal to

ending net fixed assets minus beginning net fixed assets plus depreciation.

Depreciation is the accountant's estimate of the cost of ______ used up in the production process.

equipment

what is an example of a fixed asset

equipment

the matching principle of GAAP requires revenues be matched with _____

expenses

Operating cash flow includes capital spending and working capital requirements. t/f

false -Operating cash flow is the cash flow generated by business activities, excluding financing, capital spending, or changes in net working capital.

Operating cash flow is the cash flow generated by business activities, excluding

financing, capital spending, or changes in net working capital.

The passage of the Tax Cuts and Jobs Act of 2017 was to make the federal corporate tax rate in the United States a _____ tax.

flat

How are assets on a balance sheet listed?

in order of decreasing liquidity

The information needed to compute the profit margin can be found on the ____.

income statement

A(n) ______ in net profit margin will increase ROE.

increase

If sales increase while there is no change in accounts receivable, the receivables turnover ratio will ______.

increase

Cash flow to creditors

interest paid - net new borrowing

What is an example of a current asset

inventory

Changes in capital spending can be negative when the acquisition of fixed assets is ______ the sale of fixed assets

less than

refers to the speed and ease with which an asset can be converted to cash.

liquidity

Net new borrowing

long term debt end- long term debt beginning

Long-term debt ratio is equal to

long-term debt / the sum of long-term debt and total equity

Whenever ______ information is available, it should be used instead of accounting data. Multiple choice question.

market

The price-earnings (PE) ratio is a ______ ratio.

market value

The ___________ principle of GAAP states that costs associated with a good or service should be recorded at the same time as the revenue from selling that good or service.

matching

A deteriorating time trend in a financial ratio ....

may not be a bad sign, but it does merit investigation.

Net income is

money earned after interest and taxes.

Earnings per share EPS

net income (or profit) divided by the number of stock shares outstanding

The profit margin is equal to

net income / sales

A company's _____ cash flows reflect whether its cash flows from business operations can cover its everyday cash outflows.

operating

Cash generated from a firm's normal business activities is called _____.

operating cash flow

By combining common-size and base year analysis, we eliminate the effect of the _____.

overall growth

Which of the following represents the receivables turnover ratio?

sales/ accounts recievable

Common-size statements are used for comparing firms with differing ____.

sizes

An official accounting statement that helps to explain the change in cash and cash equivalents is called the _____.

statement of cash flows

Average Tax Rate (ATR) - from bill and taxable income

tax bill/ taxable income

Shareholders equity is

the difference between the total assets and total liabilities

The ROE equals

the net profit margin X the total asset turnover X the equity multiplier.

Both the debt-equity ratio and the equity multiplier are calculated using _____ in the denominator.

total equity

Total capitalization equals

total equity + total long term debt

Enterprise value equals

total market value of the stock + the book value of the liabilities - cash.

Most importantly, assets provide ______ to the firm.

value

In the long run, all costs are _____.

variable

______ costs change as the output of the firm changes.

variable

Another name for short-term financial management is

working capital

Another name for short-term financial management is ___ management.

working capital

What is generally considered to be a short run fixed cost

-rent payments for a warehouse -rent -management salaries -bond interest -property taxes

A firm has a total debt ratio of 0.30 times. This means the firm has ___ in total debt for every $1 in total assets.

0.30

If your tax bill is $200 and your taxable income is $2,000, then your average tax rate is _____ percent.

10%

Current assets are defined as assets that can be turned into cash within ______ months.

12

Net income formula

(sales - costs- expenses) x tax rate

If a firm's net working capital is $120 in 2021 and $100 in 2020, then the change in net working capital is:

+20 ~120-100+20

Assets can be described as items that _____.

- A firm owns - Provide market value to the firm - Generate revenue

The use of financial leverage can:

- Increase the chance of financial distress and business failure - Greatly magnify both gains and losses - Increase the potential reward for investors

The difference between the total assets and total liabilities is shareholders' equity, also called

- common equity or -owner's equity

Which of the following are traditional financial ratio categories?

- market value ratios -profitability ratios -asset management ratios

The cash flow identity reflects the fact that:

-Cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. -A firm generates cash through its various activities -Cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm.

Which of these questions can be answered by reviewing a firm's balance sheet?

-How much debt is used to finance the firm? -What is the total amount of assets the firm owns?

Which of the following are uses of cash?

-Increases in inventory -Increases in property, plant and equipment -Decreases in accounts payable

what is an example of a current liability

-accounts payable -accrued expense

Liabilities:

-long term debt

The short run for a firm is the period of time during which ______. Multiple select question.

-output can vary -some costs are fixed

The Tax Cuts and Jobs Act of 2017 set the corporate tax rate to be ______ regardless of the level of taxable income.

21%

A firm with a profit margin of 6.8 percent generates ______ cents in net income for every one dollar in sales.

6.8

What does stockholders' equity represent?

A residual claim against the book value of the firm's assets. (The book value of the firm's assets less the book value of its liabilities.)

What does a balance sheet reflect about a firm?

Accounting value on a specific date

A supplier may look at the size of _____ to see how promptly the firm pays its bills.

Accounts payable

The inventory turnover is calculated by

COGS/ inventory

Which one of the following is true? -Cash flows can be derived from financial statements. -Financial statements explicitly show costing and pricing of individual products -Cash flows always exceed earnings. -Earnings, net income, and cash flows are identical.

Cash flows can be derived from financial statements

How is the inventory turnover ratio computed?

Cost of Goods Sold / Inventory

The _________ identity can help to explain why two firms with the same return on equity may not be operating in the same way.

DuPont

The times interest earned ratio equals

EBIT / interest

The common set of standards and procedures by which audited financial statements are prepared are called _____.

GAAP

In recent years, U.S. accounting standards have become more closely tied to:

IFRS

How is the price-earnings (PE) ratio computed?

Market price per share/Earnings per share

What is the equation for enterprise value?

Market value of stock + book value of liabilities − cash

total asset turnover ratio formula

Sales/Total Assets

Which one of the following is one way in which financial managers use a common-size balance sheet?

To track changes in a firm's capital structure

How is the average income tax rate computed?

Total tax bill/Total taxable income

______ costs change as the output of the firm changes.

Variable