finan test 1

how is the inventory turnover ratio computed?

Cost of Goods Sold / Inventory

Cash flows can be derived from financial statements.

true

a partnership must have at least _________ owners

two

The cash flow identity reflects the fact that:

1. Cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. 2. A firm generates cash through its various activities 3. Cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm.

which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley?

1. Enron 2. WorldCom 3. Tyco

five categories of financial ratios:

1. Short-term solvency or liquidity ratios 2. Long-term solvency or financial leverage ratios 3. Asset management or turnover ratios 4. Profitability ratios 5. Market value ratios

which of the following can be used to encourage managers to act in the best interests of shareholders?

1. better prospects of promotion 2. managerial compensation tied to performance

the possible goal of profit maximization

1. can be achieved by cost-cutting 2. would probably be the most commonly cited goal for a business

what are sources of cash?

1. decrease in accounts receivable 2. increase in notes payable

which of the following are considered stakeholders in a company?

1. employees 2. suppliers 3. government

which of the following are among the most important questions to be asked when a business is started?

1. how will everyday financial activities be handled? 2. what long-term investments should be made? 3. where will long-term financing be obtained to pay for investments?

the use of financial leverage can:

1. increase the potential reward for investors 2. greatly magnify both gains and losses 3. increase the chance of financial distress and business failure

What are uses of cash?

1. increases in inventory 2. increases in PP&E 3. decreases in accounts payable

Corporations in other countries are often called:

1. joint stock companies 2. limited liability company 3. public limited companies

which of the following, according to the textbook, are possible financial goals for a company?

1. maximize profits 2. minimize costs 3. survival

Assets can be described as items that:

1. provide market value to the firm 2. a firm owns 3. generates revenue

what are most apt to create problems when comparing financial statements for multiple firms?

1. seasonality 2. differing fiscal years 3. differing acctg methods

When a corporation is formed, it is granted which of the following rights?

1. the ability to issue stock 2. state citizenship for jurisdictional purposes 3. legal powers to sue

which of the following positions generally report to the chief financial officer?

1. treasurer 2. controller

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

DuPont

Organized auction markets include:

NYSE

the aim of the act ______ is to protect investors from corporate abuse

SOX

In addition to the importance of finance for marketing, accounting, and management careers, finance is also now considered a _____ discipline, especially at the graduate level.

STEM

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

what does a balance sheet reflect about a firm?

accounting value on a specific date

Net income refers to money earned ______.

after interest and taxes

the relationship between stockholders and management can best be described as a(n) __________________ relationship

agency

If you hire a real estate company to sell your house, you are most apt to encounter which one of the following?

agency problem

in the long run, ________ are variable

all costs

Liquidity refers to the ease of changing _____.

assets to cash

a ________________ corporation is for profit, and has legal attributes of accountability, transparency, and purpose

benefit

on the balance sheet, assets are listed at their __________ value

book

______________ budgeting is the process of making and managing expenditures on long-term assets

capital

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

In large firms, financial activity is usually associated with which top officer?

chief financial officer

a joint stock company is another name for what is referred to as a _______________ in the United States

corporation

a long-term liability represents a(n) ________________

debt that is not due in the coming year

an important accounting goal is to report financial information to users in a way that is useful for ___________

decision making

Some of the cash flow generated by a firm goes back to the financial markets in the form of ______.

dividends and debt payments

cash flow to stockholders is:

dividends paid minus net new equity raised

a common-base year financial statement presents items relative to a certain base, which is the _________________

dollar amount of each item during a common base year

in financial markets, debt and ________ securities are bought and sold

equity

finance is only important to study if you are planning a career in finance

false

it is sometimes argued that, left to themselves, managers tend to minimize the amount of resources over which they have control or, more generally, corporate power or wealth

false, maximize

the passage of the tax cuts and jobs act of 2017 was to make the federal corporate tax rate in the US a _________ tax

flat

what are the two factors that impact whether managers will act in the best interest of stockholders?

how closely management goals align with stockholder goals and the way managers are compensated

the five main areas of finance are...

investments, financial institutions, international finance, and fintech

what represents what a firm owns at a given point in time?

its assets

a corporation is a distinct __________ entity and as such can have a name and take advantage of the legal powers of natural persons

legal

capital budgeting is concerned with planning and managing a firm's ___________.

long-term investments

because ownership in a corporation is spread over a huge number of shareholders, it can be argued that __________________ effectively controls the firm

management

Whenever ___________ information is available, it should be used instead of accounting data.

market

the price-earning 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

The goal of a for-profit business is to _______ existing owners' equity.

maximize

what is the main goal of financial management?

maximize the current value per share of the existing stock

net working capital equals current assets ___________ current liabilities

minus

a sole proprietorship is a business owned by ______ person(s).

one

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

overall growth

at the most fundamental level, firms generate cash and:

spend it

a ____________ is someone other than an owner or a creditor who potentially has a claim on the cash flows of a firm

stakeholder

_________________ financial statements provide for comparison of firms that differ in currency type

standardized

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

statement of cash flows

ROE equals:

the net profit margin multiplied by the total asset turnover multiplied by the equity multiplier

the current ratio shows:

the relationship between current assets and current liabilities

the statement of cash flows summarizes the sources and uses of cash, though which of the following is true of the statement?

there are different methods of preparing it

what is true of taxes?

they can be one of the largest cash outflows a firm experiences

what is one way financial managers use a common-size balance sheet?

to track changes in a firm's capital structure