Finance
Which of the following financial statements shows a firm's financing activities (how funds were generated) and investment activities (how funds were used) over a particular period of time?
Statement of cash flows
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.
Which of the following is the formula to calculate a firm's inventory turnover ratio?
Inventory Turnover = Cost of goods sold ÷ Inventory
Which of the following is true of the degree of total leverage (DTL)?
It is the percentage change in EPS that results from a 1 percent change in sales.
Which of the following forms of business offers limited personal liability but the company's income can be taxed like a partnership?
Limited liability company
Which of the following is true of the degree of operating leverage (DOL)?
The higher the DOL, the closer the firm is to its operating breakeven point.
The degree of financial leverage (DFL) is defined as the percentage change in _____ that results from a given percentage change in earnings before interest and tax (EBIT).
earnings per share (EPS)
The prices at which the currency of one country can be converted into the currencies of other countries are known as _____.
exchange rates
A firm must pay _____ costs even if it produces and sells nothing.
fixed
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
If a firm has a degree of operating leverage (DOL) that is greater than 1.0, then it means that a 1.0 percent change in _____ will cause a change in earnings before interest and taxes (EBIT) that is _____ 1.0 percent.
sales; greater than
The firm's statement of retained earnings reports changes in:
the common equity accounts.
In which order will assets be listed in a balance sheet?
A U.S. corporation in which individual stockholders own extremely small proportions of the company.
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 is the first step involved in constructing pro forma financial statements?
Forecasting the income statement
Which of the following is considered a use of cash in a cash flow statement?
Increase in fixed assets
Which of the following statements is true of the firms that operate in several different countries?
Institutional differences among countries can cause significant problems in coordination of subsidiaries.
If the forecasted sales level is not met, which of the following will lead to a lower than expected addition to retained earnings?
Inventories being built up quickly
Which of the following statements is true of the financial breakeven point?
It determines the impact of a firm's financing mix on its earnings per share.
Which of the following forms of business offers limited personal liability but the company's income can be taxed like a partnership?
Limited liability company
Which of the following ratios shows the relationship between a firm's cash and other current assets, and its current liabilities?
Liquidity ratios
How is net income calculated in an income statement?
Net income = Earnings before taxes - Taxes
How is the net working capital calculated?
Net working capital = current assets minus current liabilities
How is the net worth of a firm calculated?
Net worth = Total assets minus total liabilities
Which of the following accounts remains the same even with an increase in sales?
Notes payable
Which of the following statements about the corporate form of business organization is correct?
One of the most important features of the corporate form of business organization is that stockholders have unlimited liability.
_____ is an example of cash flow from an investing activity in a cash flow statement.
Purchase of equipment
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
How is a firm's retained earnings at the end of the year calculated?
Retained earnings = Beginning balance of retained earnings plus net income in the current year minus dividends paid in the current year
Which of the following mathematical expressions is true if the net operating income of a firm is equal to zero?
Sales = Total variable costs + Total fixed costs
Which of the following financial statements shows a firm's financing activities (how funds were generated) and investment activities (how funds were used) over a particular period of time?
Statement of cash flows
Everything else equal, including firm size, dollar sales, type of product sold, and so forth, the primary difference between proprietorship and partnership business forms is that _____.
a partnership has more owners than a proprietorship
The percentage change in earnings before interest and tax (EBIT) associated with a given percentage change in sales is known as the _____.
degree of operating leverage
The primary goal of a financial manager should be to _____.
maximize the value of the firm's stock
The financial breakeven point is the level of _____ at which earnings per share (EPS) is equal to zero.
net operating income (NOI)
By definition, a firm's operating breakeven point represents the level of production and sales at which:
net operating income equals zero.
If a firm does not meet its forecasted sales level, then leverage will result in a magnified loss in income compared to what is expected because:
production facilities will be expanded greatly.
Shareholders can ensure that firms pursue goals that are in their best interest by _____.
providing incentives to managers to motivate them to take actions that maximize stock prices
According to the forecasting and control function, if a firm cannot obtain the funds required to meet the sales forecast, then it should _____.
scale back the projected level of operations
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.
