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.
