Fin 320 Exam 1 Review

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Shareholders' Equity=

Assets - Liabilities

Time Interest Earned Ratio

EBIT/ Interest

Which one of the following is a capital structure decision

Establishing the preferred debt-equity level

Non-Cash Items

Expenses charged against revenues that do not directly affect cash flow, such as depreciation

Income Statement Equation

Income = Revenues - Expenses

Assets=

Liabilities + Shareholders' Equity

Which one of the following is an advantage of being a limited partner?

Losses limited to capital invested

What is the goal of financial management?

Maximize the current value per share of the existing shock....Maximize the market value of the existing owners; equity.

Which one of the following statements is correct?

NASDAQ has more listed stocks than does the NYSE.

Profit Margin

Net Income / Sales

Return on Equity

Net Income / Total Equity

Return on Assets

Net Income/ Total Assets

Free Cash Flow

another name for cash flow from assets

Net Working Capital

the difference between Current assists and current liabilities

Primary Markets

the original sale of securities by governments and corporations...public offerings and private placement

Secondary Markets

the post sale of securities that are bought and sold after the original sale....dealer markets and auction markets

Liquidity

the speed and ease with which an asset can be converted to cash

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

Agency

Beginning in 2011, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires corporations with a market value over ________ to allow a nonbinding shareholder vote on executive pay.

$75,000,000

Earnings Per Share (EPS)

= Net income / Total Shares Outstanding

Dividends Per Share

= Total Dividends / Total shares Outstanding

Cash Flow from assets

= cash flow to creditors + cash flow to stockholder

Corporation

A business created as a distinct legal entity owned by one of more individuals or entires

Partnership

A business formed by two or more individuals or entities

Sole Proprietorship

A business owned by a single individual

Working Capital

A firm's short-trem assets and liabilities

Common-size statement

A standardized financial statement presenting all items in percentage terms. Balance sheet items are shown as a percentage of assets and income statement items as a percentage of sales

Marginal tax rate

Amount of tax payable on the next dollar earned.

Assets

Can be classified as either current or fixed...

Stadford, Inc. is financed with 40 percent debt and 60 percent equity. This mixture of debt and equity is referred to as the firm's:

Capital structure

Operating Cash Flow

Cash generated from a firm's normal business activities

Cash Ratio

Cash/Current Liabilities

Which one of the following is most apt to align management's priorities with shareholders' interests?

Compensating managers with shares of stock that must be held for three years before the shares can be sold

What are the four basic areas of finance?

Corporate Finance, Investments, financial Institutions, International finance

Quick Ratio

Current Assets- Inventory/Current Liabilities

Current Ratio

Current Assets/ Current Liabilities

cash flow to stockholders

Dividends paid out by a firm minus net new equity raised

Three components of Cash flow

Operating Cash Flows, Capital Spending, and Change in Net Working Capital

Which one of the following is contained in the corporate bylaws?

Procedures for electing corporate directors

financial ratios

Relationships determined from a firm's financial information and used for comparison purposes

Valerie bought 200 shares of Able stock today. Able stock has been trading for some time on the NYSE. Valerie's purchase occurred in which market?

Secondary Market

financial ratios are traditionally grouped into:

Short-term solvency, or liquidity ratios Long-term solvency, financial leverage, ratios Asset management, or turnover, ratios Profitability ratios Market Value ratios

Capital budgeting includes the evaluation of which of the following?

Size, timing, and risk of future cash flows

Stakeholder

Someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm

Generally Accepted Accounting Principles (GAAP)

The common set of standards and procedures by which audited financial statements are prepared

Which one of the following correctly defines a common chain of command within a corporation?

The controller reports directly to the chief financial officer.

Capital Structure

The mixture of debt and equity maintained by a firm

Agency Problem

The possibility of conflict of interest between the owners and management of a firm

Capital Budgeting

The process of planning and managing a firms long-term investments

Equity Multiplier

Total Assets / Total Equity, (1 + Debt-equity ratio)

Debt-Equity Ratio

Total Debt / Total Equity

Total debt ratio

Total assets - total equity / Total Assets

Average tax rate

Total taxes paid divided by total taxable income

The daily financial operations of a firm are primarily controlled by managing the:

Working Capital

cash flow to creditors

a firm's interest payments to creditors minus net new borrowings

balance sheet

financial statements showing a firm's accounting value on a particular date

Fixed Asset

fixed asset is one that has a relatively long...tangible...like a truck or a computer....or intangible..such as a trademark or patent.

Current Assets

has a life or less than one year...normally converted to cash within 12 months...inventory is a current asset

An auction market:

has a physical trading floor.

Corporate shareholders:

have the ability to change the corporation's bylaws.

Change in Net Working Capital

investing fixed assets, investing current assets?

Income Statement

measures performance over some peril of time =m usually a quarter or a year..

Net Capital Spending

money spent on fixed assets less money received from the sale of fixed assets

Flat-Rate tax

one tax rate, same for all income rates


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