FM PRELIMS REVIEWER

PROFIT MAXIMIZATION

- term which denotes the maximum profit to be earned by an org in a given period of time

MARKET RISK

-Adverse economic conditions

CASH FLOW RISK

-Cash flow inadequacy to meet obligations

CREDIT RISK

-Inability to make timely principal payments & interest

PRICE RISK

-Value of an asset will decline in the future

Forecasting and planning

-coordinate the planning, they must interact with people from other departments as they lay the plans that will shape the firm

Dealing with the financial markets

-deal with the money and capital markets

Money and capital markets

-deals with securities markets and financial institutions -where interest rates, along with stocl and bond prices are determined

Financial management/business finance

-involves decisions within firm, broadest of the three areas, important in all types of businesses, including banks and other financial institutions -decisions relating to how much and what types of assets to acquire, how to raise the capital needed to purchase assets

Major investment and financing decisions

-must help determine the optimal sales growth rate,what specific assets to acquire, best way to finance those assets

Coordination and control

-must interact with other personnel to ensure the firm is operated efficiently

Aversion to risk

-the effect of the diminishing marginal utility of wealth

Partnerships

-two or more persons associate to conduct a noncorporate business

sole proprietorships

-unincorporated business owned by one individual

an increase in accounts receivable

All else being equal, which of the following will increase a company's current ratio?

MAKE A LOAN

Amazona company wants to increase its debt to total assets ratio, which of the following activities could make this possible?:

1.67

FPL Company has cash and cash equivalents worth 10,000; equipment worth 20,000; accounts receivable worth 15,000; notes receivable worth 12,000; accounts payable worth 10,000 and notes payable worth 5,000 maturing after one month. What is the current ratio?:

140,000

Fama's French Bakery has a return on assets (ROA) of 10 percent and a return on equity (ROE) of 14 percent. If equity is equal to 100,000. What is the value of total assets?

71,429

Fana's American Bakery has a return on assets (ROA) of 10 percent and a return on equity (ROE) of 14 percent. If total assets is 100,000,what is the value of its total equity?

horizontal analysis

In this type of analysis you may compare figures from several years, so you are comparing the amounts in each account from the past up to the present

RISK CONTROL

It involves reducing the severity of the loss or the likelihood of the loss from occurring.

RISK SHARING

It means sharing with another party the burden of loss or the benefit of gain, from a risk, and the measures to reduce a risk.

PROBABILITY

It means that for each decision action there is only one event and therefore only a single outcome for each action.

FINANCIAL STATEMENTS

Its objective is to provide information about the financial position and the financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions

LIQUIDITY RISK

Marketability of the assets

1.2

Minden Co has current assets that consist of cash: 20,000, receivables:70,000 and inventory: 90,000. Current liabilities are 75,000. The quick ratio is:

net income and equity

Return on equity is directly affected by

97,500

The Merriam Company has determined that its return on equity is 15 percent. Management is interested in the various components that went into this calculation. You are given the following information:(total debt)/(total assets) = 0.35 and total assets = 1,000,000. What is the net income?

EXPECTED VALUE OF PERFECT INFORMATION

The difference between the expected value without perfect information and the return if the best action is taken given perfect information.

DECISION MAKING

The knowledge that a future state of nature will occur with certainty, i.e., being sure of what will occur in the future

RISK MANAGEMENT

The process of measuring or assessing risk and developing strategies to manage it. Also, it is a systematic approach in identifying, analyzing and controlling areas or events with a potential for causing unwanted change.

sales divided by receivables

The receivables turnover ratio is defined as

LIQUIDITY RISK

The risk that is associated with the uncertainty created by the inability to sell the investment quickly for cash.

LIQUIDITY RISK

The risk that securities cannot be sold at a reasonable price on short notice is called

MARKET RISK

The type of risk that is not diversifiable and affects the value of a portfolio

Internal Analysis

This analysis is usually used to understand operational performance of the entity to help in making their business decisions

Financial Management

This is concerned with the acquisition, financing, and management of assets with some overall goal in mind. Its decision function includes areas such as investment, financing, and asset management decision:

EFFICIENCY

Total asset turnover, receivables turnover and inventory turnover ratios measure

personnel management

Which is not a function of financial management?:

Sell merchandise with 20% mark-up from the original price

Which of the following can increase net profit margin?

SIMULATION

Which of the following technique and models in assessing investment under risk uses computer for experimenting with logical and mathematical models

limited liability partnership (LLP)

a relatively new type of partnership that is now permitted in many states.

exchange traded fund (ETF)

allows investors to sell their share at any time during normal trading hours. ETFs usually have very low management expenses and are rapidly gaining in popularity

INTRINSIC VALUE -

an estimate of a stocks "true" value based on accurate risk and return data

RISK

can be defined as the chance that some unfavorable event will occur

Mutual funds

corporations that accept money from savers and then use these funds to buy financial instruments.

Investments

decisions made by both individual and institutional investors as they choose securities for their investment portfolios -security analysis, portfolio theory and market analysis

Capital Asset Pricing Model

is a model based on the proposition that any stock's required rate of return is equal to the risk-free rate of return

Hedge funds

raise money from investors and engage in a variety of investment activities.

BUSINESS RISK

refers to the uncertainty about the rate of return caused by the nature of the business.

Risk management

risks can be reduced by purchasing insurance or by hedging in the derivatives markets, the firm's overall risk management program, managed in the most efficient manner.

Security Market Line (SML)

shows the relationship between a security's market risk and its required rate of return.