Business Finance CH 1-3
Dual listing of a stock is advantageous to a company. It is not beneficial for stock exchanges, but they allow dual listing because of regulatory requirements. T/F
False
Financial managers should seek the combination of assets, liabilities, and capital that generate the largest expected projected income in the current accounting period. T/F
False
Having the manager's compensation tied to the company's performance increases the agency problem that corporations face. T/F
False
If an individual investor uses the services of a broker to buy and sell stocks that are currently being traded in the stock market, the transaction is referred to as a primary market transaction. T/F
False
In 2010, the Securities and Exchange Commission (SEC) announced its support for Generally Accepted Accounting Principles (GAAP). T/F
False
In a competitive marketplace, "good ethics" is a wonderful idea but an impractical standard, because there are simply too few benefits to be gained from maintaining high business ethics. T/F
False
Managers of firms that use alternative accounting techniques to inflate current earnings are likely to generate long-term benefits to the shareholders of the firm. T/F
False
Primary markets are exchanges with physical locations, whereas secondary markets are over-the-counter markets. T/F
False
Which of the following is considered a part of cash flow from a financing activity in a statement of cash flows?
Increase in corporate bonds
Which of the following is considered a use of cash in a cash flow statement?
Increase in fixed assets
Which of the following is an example of a current asset?
Inventory
Which of the following is true about a common size balance sheet?
The assets, liabilities, and equities are reported as percentages of total assets.
Which of the following is true about the book value and market value of a firm's debt?
The book value of a firm's debt generally is either equal to or very close to the market value of the firm's debt.
Which of the following statements is true about the values recorded in the balance sheet of a firm?
The book value of a firm's debt generally is equal to or very close to the market value of the firm's liabilities.
Paying Payroll Service (PPS) recently declared bankruptcy. The price of PPS's stock has dropped from approximately $10 per share one year ago to $1 today. You can imagine that stockholders are not happy that the value of their stock has dropped so significantly. At the same time the financial position of the firm was deteriorating, PPS executives increased their salaries and perquisites substantially. Nothing they did violated any laws or was considered an unethical act. We would most likely describe this situation as
an agency problem
Mutual funds _____.
are investment companies that use funds provided by savers to buy various types of financial assets, including stocks and bonds, in the financial markets
Because financial institutions in other countries are generally less regulated than those in the United States, they generally _____.
can provide businesses a greater variety of services than U.S. banks can
The prices at which the currency of one country can be converted into the currencies of other countries are known as _____.
exchange rates
Credit unions, mutual funds, and thrift institutions are all examples of _____.
financial intermediaries
A limitation of ratio analysis is that:
firms can employ window-dressing techniques to make their financial statements look better.
The expenditure incurred by a company in connection with its initial public offer is called the _____.
flotation cost
The Sarbanes-Oxley Act of 2002 requires a publicly-traded corporation to _____.
have a committee that consists of outside directors to oversee the firm's audits
Assuming that other things are constant, the price earnings (P/E) ratio:
is higher for firms with high growth prospects and lower for riskier firms.
It is possible to limit the liability faced by some of the partners in a partnership form of business by establishing a _____.
limited liability partnership (LLP)
The primary goal of a financial manager should be to _____.
maximize the value of the firm's stock
The management's primary goal is stockholder wealth maximization, which, translates into _____.
maximizing the value of the firm as measured by the price of its common stock
Institutional investors can ensure that a corporation pursues goals that are in their best interest by _____.
monitoring its financial performance to ensure that managers pursue the goal of wealth maximization
Investment companies that use the money provided by savers to invest in various types of financial assets, including stocks and bonds, are called _____.
mutual funds
The funds provided by common stockholders that consist of common stock, paid-in capital, and retained earnings are referred to as the firm's:
net worth.
Industrial groups that exist in foreign countries are _____.
organizations that tie together all the functions of production and sales from start to finish
_____ is an example of cash flow from an investing activity in a cash flow statement.
Purchase of equipment
Which of the following ratios is calculated to help determine the liquidity of a firm?
Quick ratio
A firm's net income as reported on its income statement is also known as the firm's _____.
accounting profit
The statement of retained earnings for Redwood Systems Ltd. shows a retained earnings balance of $300 million on December 31. During the year, Redwood generated net income of $60 million and paid dividends of $20 million to its stockholders. What was the beginning balance of retained earnings at the start of this year?
$260 million
Greenwood Builders Ltd. has a debt ratio of 35 percent and it has total assets of $750,000. What is the value of their total liabilities?
$262,500
Amber Devices Ltd. has total assets worth $900 million and total liabilities worth $475 million at the end of December 31. What is the amount of money received by the stockholders, if Amber liquidates all of its assets for $850 and pays off all of its outstanding debt at book value?
$375 million
Ruby Enterprises Ltd. has long-term bonds worth $20 million, retained earnings of $45 million, accounts payable of $10 million, notes payable of $12 million, and inventory worth $18 million. What is the value of total liabilities of Ruby Enterprises?
$42 million
Welsh Corporation wants to issue debt of $525,000 to invest in a new project. Welsh is required to pay its investment banker 5 percent of the issue's total value. There are no other floatation costs. Compute the amount of debt that the firm must issue to net $525,000 after flotation costs.
$552,632
The Charleston Company is a relatively small, privately owned firm. Last year, the company had an after-tax income of $15,000 and 10,000 shares were outstanding. The owners were trying to determine the market value for the stock prior to taking the company public. A similar firm, which is publicly traded, had a price/earnings ratio of 5.0. Using only the information given, the market value of one share of Charleston's stock is estimated as:
$7.50.
The book value of the common stock of Zircon Global Ltd. is $34 million. If Zircon has four million shares of common stock outstanding, what is its book value per share?
$8.50 per share
Sapphire Industries Ltd. has a net income of $60 million and the total depreciation on its assets is $20 million. The net cash flow of Sapphire Industries is:
$80 million.
Determine the increase or decrease in cash for Rinky Supply Company for last year, given the following information. (Assume no other changes occurred during the past year.) Dividend payment $25 Increase in accounts receivables $50 Increase in notes payable $30 Decrease in accounts payable $20 Increase in accrued wages and taxes $15 Increase in inventories $35 Addition to retained earnings $5
-$80
The net fixed assets of Auburn Media Ltd. is $850 million. The sales of the firm is $1,420 million. The firm's fixed assets turnover ratio is:
1.67 times.
A firm has total interest charges of $10,000 per year, sales of $1 million, a tax rate of 40 percent, and a net profit margin of 6 percent. The firm's times interest earned ratio is:
11 times.
Suppose a firm has a growth rate equal to 8 percent, return on assets (ROA) of 10 percent, a debt ratio of 20 percent, and a current stock price of $36. The firm's return on equity (ROE) is:
12.5%
Selzer Inc. sells all of its merchandise on credit. It has a profit margin of 4 percent, days sales outstanding equal to 60 days, receivables of $150,000, total assets of $3 million, and a debt ratio of 0.64. The firm's return on equity (ROE) is:
3.3%
Assume that Meyer Corporation is 100 percent equity financed, and has the following information: (1) Earnings before taxes = $1,500; (2) Sales = $5,000; (3) Dividend payout ratio = 60%; (4) Total assets turnover = 2.0; (5) Applicable tax rate = 30% The firm's return on equity is:
42%.
A firm's total equity is $10 million and total liabilities is $5 million. During the year, its sales equaled to $75 million. Based on the given information, the total assets turnover ratio of the firm is:
5 times.
Persian Rugs needs $600 million to support growth next year. If it issues new common stock to raise the funds, the flotation (issuance) costs will be 4 percent. If Persian can issue stock at $125 per share, how many shares of common stock must be issued so that it has $600 million after flotation costs to use for its planned growth?
5,000,000
Alumbat Corporation has $800,000 in debt outstanding, and pays an interest rate of 10 percent annually on its bank loan. Alumbat's annual sales are $3,200,000, its average tax rate is 40 percent, and its net profit margin on sales is 6 percent. If the company does not maintain a TIE ratio of at least 4 times, its bank will refuse to renew its loan, and bankruptcy will result. Alumbat's current times interest earned ratio is:
5.0 times
Daisy Inc.'s book value per share is $10, and its market-to-book ratio is 1.5. If its earnings per share is $2.5, calculate its price/earnings (P/E) ratio.
6.0
A firm has total assets of $500 million, including its accounts receivable, which is worth $120 million. The annual sales of the firm is $650 million. The days sales outstanding (DSO) ratio of the firm is:
66.5 days.
Which of the following changes is considered a source of cash when preparing a statement of cash flow?
A decrease in inventories
Which of the following statements is true about net worth?
A firm's net worth is equal to total assets minus total liabilities.In 2010, the Securities and Exchange Commission (SEC) announced its support for Generally Accepted Accounting Principles (GAAP).
Which of the following is true of a general partner of a limited liability partnership (LLP)?
A general partner of a limited liability partnership (LLP) is fully personally liable for all business debts.
Identify the correct statement about a limited liability partnership (LLP). - The controller of a limited liability partnership is responsible for the negligence and irresponsibility of the general partners. -A limited partner of a limited liability partnership is responsible for the general management of the partnership business. -A limited partner of a limited liability partnership is liable to pay tax on all the partnership income. - A general partner of a limited liability partnership is personally liable for all business debts.
A general partner of a limited liability partnership is personally liable for all business debts.
Identify a true statement about a limited liability company (LLC). -A limited liability company (LLC) has only one type of stock (membership interest). -A limited liability company (LLC) has a maximum of 100 stockholders (owners). -A limited liability company (LLC) offers the limited personal liability associated with a corporation. -A limited liability company (LLC) is taxed as a partnership, which means the stockholders are subject to double taxation.
A limited liability company (LLC) offers the limited personal liability associated with a corporation.
Which of the following statements is true of a term life insurance?
A term life insurance is a relatively short-term contract that provides financial protection for a temporary period.
Other things held constant, which of the following will not affect the current ratio, assuming an initial current ratio greater than 1.0?
Accounts receivable are collected
Which of the following agreements is included in the Basel III Accord (2010)?
Agreement to increase banks' capital (owners' equity) requirements in an effort to reduce the risk that mega bank failures will cause future financial crises
Which of the following equations is used to compute the dollar amount of common stock or debt that a company must issue after taking into account the flotation costs?
Amount of issue = (Net proceeds + Other flotation costs in dollars) / (1 - Flotation costs in decimal form)
Which of the following represents a difference between an S corporation and a limited liability company (LLC)?
An S corporation has no more than 100 stockholders, whereas an LLC can have more than 100 owners (members).
Different accounting practices will not have an impact on the comparative ratio analyses of different firms.
False
Which of the following financial statements includes information about a firm's assets, equity, and liabilities at a specific point in time?
Balance sheet
Which of the following mathematical expressions is used to compute the book value per share?
Book value per share = Common equity ÷ Total number of shares outstanding
Which of the following examples involves the sacrifice of current income for greater expected earnings in the future?
Buying a financial security (e.g., a bond or a stock) with one's own funds
Identify the internal factor that influences the stock price of a firm.
Capital Structure
Which of the following is the most appropriate measure to examine whether management of a firm is pursuing the goal of maximizing the firm's stock price?
Cash Flows
Which of the following accounts contains the actual money that can be spent by a firm?
Cash and Equivalents
Which of the following is an example of a firm's long-term debt?
Corporate bonds
Which of the following is considered as a liability in the balance sheet of a firm?
Corporate bonds
A depository institution that is owned by its depositors, who are often members of a common organization or association, such as an occupation, a religious group, or a community, is called a(an) _____.
Credit union
Which of the following financial intermediaries operates as a not-for-profit organization?
Credit union
Which of the following mathematical expressions calculates the debt ratio?
Debt ratio = Total liabilities ÷ Total assets
When issuing new securities, which of the following decisions is made jointly by a corporation and its investment banker?
Deciding whether to go for a best-efforts or underwritten issue
When issuing new securities, which of the following decisions does the firm make by itself?
Deciding whether to go for a competitive bid or a negotiated deal with an investment banker
Which of the following terms refers to the process of converting a not-for-profit stock exchange owned by its members to a for-profit organization with publicly-traded stocks that are owned by outside shareholders?
Demutualization
Which of the following is an example of a noncash item reported in the income statement of a firm?
Depreciation
Which of the following acts proposed the creation of new organizations to monitor rules associated with the capital, liquidity, and risk of financial institutions to help prevent future failures of mega financial organizations?
Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)
Which of the following is considered by analysts when comparing the operations of two firms that are financed differently?
Earnings before interest and taxes
Which of the following mathematical expressions computes earnings per share (EPS)? -Earnings per share = (Net Income - Dividend Paid) × Number of outstanding shares of common stock -Earnings per share = (Net Income + Dividend Paid) ÷ Number of outstanding shares of common stock -Earnings per share = Net Income ÷ Number of outstanding shares of common stock
Earnings per share = Net Income ÷ Number of outstanding shares of common stock
Which of the following statements is true of earnings per share? - A company must pay tax on the earnings per share. -A company can maximize its value by maximizing earnings per share. -Earnings per share is often used as an indication of the firm's potential for generating future cash flows. -A high earnings per share in the current period results in lower future risk position of the business.
Earnings per share is often used as an indication of the firm's potential for generating future cash flows.
Which of the following acts limits the salaries of executives whose companies received Troubled Asset Relief Program (TARP) funds?
Emergency Economic Stabilization Act of 2008
_____ is an example of a long-term investment of a firm.
Equipment
A decline in the inventory turnover ratio suggests that the firm's liquidity position is improving.
False
A firm's net income reported on its income statement must equal the operating cash flows on the statement of cash flows. T/F
False
A money market is the market for trading in securities with maturities greater than one year and includes such financial assets as stocks and long-term corporate bonds. T/F
False
A primary market is that segment of the financial markets where the instruments that are traded have original maturities equal to one year or less. T/F
False
As hostile takeovers are most likely to occur when a firm's stock is overvalued, the managers have a strong incentive to undervalue the firm's stock relative to its potential. T/F
False
Cultural differences do not impact the multinational corporations as they expand into different geographic regions. T/F
False
Retained earnings is the amount of cash that has been generated by the firm through its operations but has not been paid out to stockholders as dividends. Retained earnings are kept in cash or near cash accounts, and thus these cash accounts, when added together, will always be equal to the total retained earnings of the firm. T/F
False
The New York Stock Exchange (NYSE) is an example of an over-the-counter exchange. T/F
False
The Securities and Exchange Commission (SEC) regulations are intended to ensure that investors receive fair disclosure of financial and nonfinancial information from privately held companies. T/F
False
The Securities and Exchange Commission (SEC) was created to develop and approve a set of common international accounting rules. T/F
False
The book values of shares of stock are always equal to their market values.
False
The disadvantages associated with a proprietorship are similar to those of a partnership. A major difference between these two forms of business organization is that a partnership requires a legal agreement that commits the partners' personal assets, which means that partnerships have little difficulty raising large amounts of capital (similar to corporations). T/F
False
The international market for bonds has grown at a slower rate as compared to the international stock markets. T/F
False
The proper goal of the financial manager should be to maximize the firm's expected profit, because this will add the most wealth to each of the individual shareholders (owners) of the firm. T/F
False
To properly maximize the value of the firm, the financial manager should execute his or her duties independent of the cash flow decisions made by other senior managers. T/F
False
Which of the following statements is true regarding debt ratios?
Firms with relatively high debt ratios have higher expected returns when business is good.
Identify the external factor that affects the value of a firm's stock.
General level of economic activity
If an analyst's goal is to determine how effectively a firm is managing its assets, which of the following sets of ratios would he or she examine?
Inventory turnover ratio, days sales outstanding, and fixed asset turnover ratio
Which of the following actions is consistent with social responsibility and is not necessarily inconsistent with stockholder wealth maximization? -Selling a smokestack "scrubber" required by the firm's air pollution policy that is also mandated by law. -Investing in a smokestack filter to reduce sulphur-dioxide emissions to decrease the tax being levied on the firm by the state for pollution it produces each year. -Making a large corporate donation to the local community for funding a recreation complex that can be used by the firm's employees only. -Dumping effluent discharge into a river, where it ruins the drinking water of the community around the plant. The installation of machinery to treat the effluents is very expensive.
Investing in a smokestack filter to reduce sulphur-dioxide emissions to decrease the tax being levied on the firm by the state for pollution it produces each year.
Which of the following is true of financial institutions? - Financial institutions are the regulators of interest rates and other returns in financial markets. -Managers of financial institutions should have an understanding of factors that cause interest rates and other returns in the financial markets to rise and fall. -Financial institutions are accountable and responsible in reporting financial information for publicly-traded corporations. -Financial institutions require public corporations to adopt socially responsible work practices.
Managers of financial institutions should have an understanding of factors that cause interest rates and other returns in the financial markets to rise and fall.
Which of the following is true of stockholders in continental Europe?
Many stockholders assign banks their proxy votes for the directors of the companies.
Which of the following should be the primary goal pursued by the financial manager of a firm?
Maximizing the market value of the firm's stock
Treasury bills are issued by the U.S. government. In which type of financial market do already issued treasury bills trade?
Money market
Which of the following mathematical expressions calculates the net cash flow if depreciation is the only noncash item in a firm's income statement?
Net cash flow = Net income + Depreciation
Which of the following items appears at the top of an income statement when determining the net income of a firm?
Net sales
Which of the following mathematical expressions computes the net worth of a firm?
Net worth = Total assets minus total liabilities
Which of the following plans is administered primarily by the trust departments of commercial banks or by life insurance companies?
Pension plans
Pearl Automotive Ltd. has a current ratio of 2. The company wants to window dress its financial statements. Which of the following transactions will increase the current ratio of Pearl Automotive, assuming all other variables remain constant?
Repayment of short-term loan
Which form of market efficiency that states that it does no good to scrutinize such publicly available information as a company's financial statements to seek abnormal returns, because market prices will adjust to any good news or bad news contained in such reports as soon as they are made public?
Semistrong-form efficiency
Zinc Corporation, a large, well-known public company that frequently issues securities, filed a master registration statement with the Securities and Exchange Commission (SEC). This master statement is updated with a short-form statement just prior to each individual security offering. What is this arrangement called?
Shelf registration
Which of the following financial statements is included in the annual reports of a company?
Statement of cash flows
Which of the following financial statements is prepared to show the changes in the common equity accounts between balance sheet dates?
Statement of retained earnings
Which form of informational efficiency states that current market prices of securities reflect all pertinent information?
Strong-form
Which of the following statements is true of the concentrated organizational structures of non-U.S. firms? -The concentrated organizational structures of non-U.S. firms reduce the managerial focus on wealth maximization. -The concentrated organizational structures of non-U.S. firms result in restricted access to credit in times of financial difficulty. -The concentrated organizational structures of non-U.S. firms result from the universal banking relationships that exist outside the United States. -The concentrated organizational structures of non-U.S. firms permit managers to focus more on short-term earnings.
The concentrated organizational structures of non-U.S. firms result from the universal banking relationships that exist outside the United States.
The 11 "titles" in the Sarbanes-Oxley Act of 2002 establish standards for accountability and responsibility in reporting financial information for publicly-traded corporations. Which of the following activities does the act provide that a corporation must abide by?
The corporation must provide additional information about the procedures used to construct and report financial statements.
Which of the following statements concerning the complexity of the manager's task in a multinational corporation is correct?
The currency values of different countries in which a multinational corporation operates often experience fluctuations.
A firm's current ratio has steadily increased over the past 5 years, from 1.9 to 3.8. What would a financial analyst probably conclude from this information?
The firm's liquidity position has improved.
Which of the following is true of the investment function of finance?
The investment function focuses on the values, risks, and returns associated with financial assets such as stocks and bonds.
Which of the following statements is true about the annual report of a company?
The key importance of annual report information is that it is used by investors when they form their expectations about the firm's future earnings and dividends.
Which of the following is an example of ethical behavior of the management of a corporation?
The management takes steps to adhere to laws and regulations relating to product safety.
Compared to corporations, what is the primary disadvantage of partnerships as a form of business organization?
The owners of a partnership, that is, the partners, have unlimited liability when it comes to business obligations whereas the owners of a corporation have limited liability.
Bicksler Corporation has a current ratio of 2.0 on July 21 of the current year. On July 22, Bicksler purchased (and received) raw materials on credit from its supplier. Assuming all other things are equal, how will this transaction affect the current ratio of Bicksler?
The value of the current ratio will decrease.
Two key limitations of the proprietorship form of business involve potential difficulty in raising the necessary capital and the presence of unlimited personal liability for business debts. T/F
True
Which of the following statements is correct? -There are more partnerships and proprietorships than corporations in the United States, but corporations produce more goods and services than do other forms of business. -Because partnerships and proprietorships enjoy the benefits of limited liability, easy transferability of ownership interest, unlimited life, and favorable tax status relative to the situation for corporations, most large businesses choose to be set up as partnerships and proprietorships. -An advantage of the corporate form for many businesses is the fact that the corporate tax rate always exceeds the personal tax rate, which is the rate at which proprietorships and partnerships are taxed. -A major disadvantage of a regular partnership or a corporation as a form of business is the fact that they do not offer their owners limited liability, whereas proprietorships do.
There are more partnerships and proprietorships than corporations in the United States, but corporations produce more goods and services than do other forms of business.
Which of the following financial intermediaries is also known as a savings and loan association?
Thrift institution
What is the primary reason an investment banking firm often forms an underwriting syndicate to sell new securities?
To spread the risk associated with the purchase and distribution of a new issue of securities
A financial manager's task is to make decisions concerning the acquisition and use of funds for the greatest benefit of the firm. T/F
True
A simple approach to trend analysis is to construct graphs. T/F
True
Determining whether a firm's financial position is improving or deteriorating requires analysis of more than one set of financial statements. Trend analysis is one method of measuring a firm's performance over time. T/F
True
Dual listing of stocks and the mandatory use of the trade-through rule when trading in securities have made the stock markets extremely competitive. T/F
True
Exchange rate risk is the risk that the cash flows from a foreign project will be worth less than those same cash flows denominated in the parent company's home currency. T/F
True
In a competitive marketplace, if managers deviate too far from making decisions that are consistent with stockholder wealth maximization, they risk being disciplined by the market. Part of this discipline involves the threat of being taken over by companies with policies that are more aligned with stockholder interests. T/F
True
In an underwritten arrangement, the investment banker assures the company that is issuing new securities that the entire issue will be sold, which means the investment banker bears significant risks in such an offering. T/F
True
In general, the role of a financial manager is to plan for the acquisition and use of funds so as to maximize the value of the firm. T/F
True
In the United States, sales of new stocks and bonds are regulated by the Securities and Exchange Commission (SEC). T/F
True
Most foreign financial institutions are allowed to engage in nonbanking (nonfinancial) business activities, whereas the nonbanking activities of U.S. intermediaries have been severely restricted until recently. T/F
True
The balance sheet includes historical values that can impact the validity of a firm's financial ratios. T/F
True
The corporate charter is a document filed with the secretary of the state in which a firm is incorporated that provides information about the corporation, including its name, address, directors, and amount of capital stock. T/F
True
The existence of financial intermediaries greatly increases the efficiency of financial markets because, without them, savers would have to provide funds directly to borrowers, which would be a costlier process. T/F
True
The information contained in the annual report is used by investors to form expectations about future earnings and dividends. (t/F)
True
The management takes steps to adhere to laws and regulations relating to product safety. T/F
True
The trade-through rule states that a stock trade should be executed at the best price that is available in all of the stock markets. T/F
True
When generating financial statements, the Securities and Exchange Commission (SEC) allows publicly traded foreign companies to use the International Financial Reporting Standards (IFRS) rather than the Generally Accepted Accounting Principles (GAAP) if IFRS is the accounting system used in their home country. T/F
True
Which of the following is true about financial institutions in the United States compared to those in other countries?
U.S. financial institutions have been much more heavily regulated than their foreign counterparts with regard to expansion (branching) and the services that could be offered.
Which of the following are the degrees of informational efficiency described in the book?
Weak form, semistrong form, and strong form
Which of the following financial statements summarizes the revenue generated and the expenses incurred by a firm during the accounting period?
Which of the following financial statements summarizes the revenue generated and the expenses incurred by a firm during the accounting period?
If William earns a 10 percent return and Kate earns a 7 percent return on investments with the same risk, the additional 3 percent return on William's investment is a(n) _____.
abnormal return
A comparison of a firm's ratios with those of other firms in the same industry at the same point in time is called:
comparative (benchmarking)
Zync Corporation offers a block of its securities for sale to the investment banker that submits the highest price of all interested investment bankers. This procedure is known as a _____.
competitive bid
The accounting and tax departments are the responsibility of the _____.
controller
Financial services refer to functions provided by organizations that _____.
deal with the management of money
The investment function of finance helps in _____.
determining the values, risks, and returns associated with such financial assets as stocks and bonds
In the United States, the most common form of business is the _____, and the form of business that generates most of the sales and profits is the _____.
proprietorship; corporation
A document describing a new security issue and the issuing company is called a(n) _____.
prospectus
Listing requirements of a security refer to the _____.
quantitative and qualitative characteristics a firm must possess to be listed on a stock exchange
The success of financial institutions requires an understanding of _____.
regulations that affect these financial institutions
The equity section of a firm's balance sheet contains _____.
retained earnings
The days sales outstanding (DSO) ratio of a firm identifies:
the average length of time a firm must wait after making a credit sale before receiving cash.
In the trading of a security, the dealer's spread refers to _____.
the difference between the bid and asked prices of a security, which represents the dealer's markup, or profit from a security transaction
A low inventory turnover ratio might indicate that:
the firm is holding excess stocks of inventory.
An inventory turnover ratio of 8.5 times indicates that:
the firm will restock its inventory every 42.35 days.
The extent to which the operating income can decline before a firm is unable to meet its annual interest costs can be found in:
the times interest earned ratio
If a company has a quick ratio of 1.0 and a current ratio of 2.0, then:
the value of current liabilities is equal to the value of inventory
The credit manager is supervised by the _____.
treasurer
An analysis of a firm's financial ratios over time used to determine the improvement or deterioration in its financial situation is called _____.
trend analysis
The difference between the issuing price of a debt or equity issue and the net proceeds of the issue received by the issuing firm is known as the _____.
underwriter's spread
An arrangement in which the investment banking firm typically buys the securities from the issuing firm and then sells the securities in the primary markets, hoping to make a profit, is called a(n) _____.
underwritten arrangement
The form of informational market efficiency that states that current market prices fully reflect all information contained in past price movements is known as the _____.
weak-form efficiency
Financial intermediaries spread their risk by providing funds to a large number and variety of borrowers by offering many different types of loans. Due to this, the loan portfolios of intermediaries are said to be _____.
well diversified
Techniques employed by firms to make their financial statements look better than they actually are, are called:
window-dressing techniques.