Finance Test 1

The debt to equity ratio for a company with $1 million in total debt and $2 million in equity is _________?

.50

Which of the following are traditional financial ratio categories?

- Turnover Ratios - Profitability Ratios - Financial Leverage Ratios

Based on the sustainable growth rate, which of the following factors affect a firm's ability to sustain growth?

-Profit margin -Financial policy -Dividend policy

The primary responsibility of financial managers is to increase the value of

the existing shares of stock

Which corporate officer is responsible for managing the firm's cash?

treasurer

If a company's balance sheet shows $400 in cash, $100 in inventory, and $200 in current liabilities, its cash ratio is ______.

2.0

Ensuring that the firm has sufficient funds to continue operations of day-to-day basis comes under the heading of _____ management

working capital

AD corporation had sales of $750,000 and cost of goods sold of $350,000. Inventory at year end was $87,500. the firm's inventory turnover is ______.

4.00

Rock construction has current assets of $45 million, total liabilities and equity of $67 million, and sales of $59 million. how would current assets be expressed on a common-size balance sheet?

67%

Alpha Manufacturing has cost of goods sold of $90 million and a new income of $9.6 millions on total sales of $120 million. Total assets are $150 million. A common-size income statement will show cost of goods sold of 75% and a net profit of ___%.

8

Which of the following is (are) true of financial ratios?

Are used for comparison purposes and Are developed from a firm's financial information

One of the important questions in the area of investments includes the potential risks and reward associated with investing in ______ assets

Financial

Business finance is broadly concerned with which of the following?

How to manage day-to-day finances of the firm, how to finance long-term investments, which long-term investment to make

A good financial decision will do what?

Increase the value of the firm's stockholders' equity and existing stock

Which of the following is true about the sustainable growth rate?

It is the MAXIMUM rate of growth a firm can maintain WITHOUT INCREASING its financial leverage

Which of the following are true of a sole proprietorship?

It is the simplest form of business, and it has a limited life

How is price-earnings (PE) ratio computed?

Market price per share / Earnings price per share

The profit margin is equal to net income divided by ___.

Sales

_____ financial statements provide comparisons for firms who differ in size

Standardized

The owners of a corporation are called?

Stockholders

The controller is responsible for:

Tax reporting and financial accounting

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

The ability to issue stock, legal powers to sue

A shareholder's liability is limited to what?

The amount the shareholder invested in the corporation

What does it mean when a firm has a days' sales in receivables of 45?

The firm collects its credit sales in 45 days on average

Which of the following positions report to the CFO?

Treasurer and controller

What three questions are the financial manager concerned with?

capital budgeting, capital structure, working capital management

Which of the following items is used to compute the current ratio?

cash and accounts payable

A firm with a market-to-book value that is greater than 1 is said to have ________ value for its shareholders

created

Common-size statements are best used for comparing:

firms of different sizes, year-to-year for your firm, competitors

If a company has inventory, the quick ratio will always be _____ the current ratio

less than

Current assets on the common size balance sheet over the past three years have increased from 32 to 35% while current liabilities have decreased from 29 to 25%. This indicates the firm has increased its _____.

liquidity

Capital budgeting is concerned with making and managing expenditures on

long-term assets

Which of the following are included in a firm's capital structure?

long-term debt, equity

The price-earnings (PE) ratio is a ____ ratio

market value

Based on the DuPont Identity, an increase in sales, all else held, ____ ROE.

may increase or decrease, may not change

A _______ is similar to proprietorship, except that there are two or more owners.

partnership

If a company has had negative earnings for several periods they might choose to use a _____

price-sales ratio

Which term applies to the mixture of debt and equity maintained by a firm?

Capital structure

The federal government taxes?

Corporate earnings and shareholder dividends

How is the ownership transferred in a corporation?

Ownership is transferred by gifting and selling of stocks

Which of the following is NOT one of the basic areas of finance?

Personal Finance

Corporations in other countries are often called

Public limited companies, limited liability and Joint stock companies

The conflict of interest between an agent and a principal is called an

agency problem