SmartBook 1-3

Which of the following are sources of cash?

A decrease in accounts receivable. An increase in notes payable.

Because we are almost always unable to obtain all of the market information we want, we rely on ____ number for much of our financial information

Accounting

A ____________ corporation is for profit, and has the legal attributes of accountability, transparency, and purpose.

Benefit

In large firms, financial activity is usually associated with which top officer?

CFO or VP of Finance

How is the inventory turnover ratio computed?

COGS/Inventory

The 5 main areas of finance are corporate finance, _____, financial institutions, international finance and fintech.

Investments

Which one of the following does not affect ROE according to the DuPont identity?

Investor sentiment

Which of the following is the correct representation of the total debt ratio?

(total assets - total equity) / total assets

The cash flow identity reflects the fact that:

-Cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. -A firm generates cash through its various activities -Cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm.

A firm has a total debt ratio of 0.30 times. This means the firm has ___ in total debt for every $1 in total assets.

.30

The Tax Cuts and Jobs Act of 2017 set the corporate tax rate to be ______ regardless of the level of taxable income.

21%

Organized auction markets include:

New York Stock Exchange

In the long run, ________ are variable.

all costs

The more debt a firm has, the greater its:

degree of financial leverage

In financial markets, debt and _______ securities are bought and sold

equity

In a shareholder-manager relationship, who is the agent?

Managers

The five categories of financial ratios include short-term solvency, long-term solvency, asset management, profitability, and _________ value ratios

Market

Whenever ___________ information is available, it should be used instead of accounting data.

Market

Which of the following are traditional financial ratio categories?

Market value ratios Asset management ratios Profitability ratios

The goal of a for-profit business is to ______ existing owners' equity.

Maximize

A business without separate legal authority formed by two or more people is known as a _____.

Partnership

Corporations in other countries are often called:

Public limited companies or joint stock companies

The aim of the act known as _____ is to protect investors from corporate abuse.

SOX

In addition to the importance of finance for marketing, accounting, and management careers, finance is also now considered a _____ discipline, especially at the graduate level.

STEM

The profit margin is equal to net income divided by ______.

Sales

Common-size statements are used for comparing firms with differing ____.

Sizes

A ______ is someone other than an owner or a creditor who potentially has a claim of the cash flows of a firm.

Stakeholder

____ financial statements provide for comparison of firms that differ in size.

Standardized

_____ financial statements provide for comparison of firms that differ in currency type.

Standardized

The financial manager acts in the shareholders' best interests by making decisions that increase the value of _____.

The stock

The statement of cash flows summarizes the sources and uses of cash, though which of the following is true of the statement?

There are different methods of preparing it

True or false: In one way or another, the basic problem with financial statement analysis is that there is no underlying theory to help us identify which quantities to look at and to use in establishing benchmarks.

True

A balance sheet reflects a firm's ______ value on a particular date.

accounting

What does a balance sheet reflect about a firm?

accounting value on a specific date

Net income refers to money earned ______.

after interest and taxes

A useful way of standardizing financial statements is to choose a ____ and then express each item relative to the _____.

base year; base amount

Under GAAP, U.S. firms must carry assets at:

book value

The total of cash flow to creditors and cash flow to stockholders is called _____.

cash flow from assets

The current ratio shows the relationship between ____.

current assets and current liabilities

The inventory turnover ratios for Proctor and Gamble over the past three years are 5.09, 5.72, and 5.92 times, respectively. Explaining the upward trend in the inventory turnover ratio requires:

further investigation

Assets can be described as items that _____

generate revenue a firm owns provide market value to the firm

How is the price-earnings (PE) ratio computed?

market price per share/earnings per share

The price-earnings (PE) ratio is a ______ ratio.

market value

The ___________ principle of GAAP states that costs associated with a good or service should be recorded at the same time as the revenue from selling that good or service.

matching

Cash flow to stockholders is dividends paid _____ (minus/plus) net new equity raised.

minus

Net working capital equals current assets ______ current liabilities.

minus

Noncash items are expenses that directly affect _____ but do not directly affect ______.

net income; cash flow

A sole proprietorship is a business owned by ____ person(s)

one

Most equity shares of large firms in the U.S. trade on:

organized acutio

How is income defined?

revenue minus expenses

At the most fundamental level, firms generate cash and:

spend it

Long-term liabilities are not due in the current year (from the date of the balance sheet).

true

Most importantly, assets provide ______ to the firm.

value

In the long run, all costs are _____.

variable

When combining common-size and common-base year analysis, the effect of overall growth in assets can be eliminated by first forming the:

Common size statements

Which of the following positions generally report to the chief financial officer (CFO)?

Controller and Treasurer

Joint stock company is another name for what is referred to as a ______ in the United States.

Corportation

True or false: A deteriorating time trend in a financial ratio is always a bad sign.

False

Which one of the following is true? Earnings, net income, and cash flows are identical. Financial statements explicitly show cash flows. Cash flows can be derived from financial statements. Cash flows always exceed earnings.

Financial statements explicitly show cash flows.

Capital budgeting is concerned with planning and managing a firm's _____.

Long term investments

An official accounting statement that helps to explain the change in cash and cash equivalents is called the _____.

Statement of cash flow

Cash flow to stockholders equals ____.

dividends paid minus net new equity raised

The matching principle of GAAP requires revenues be matched with _____.

expenses

Another name for short-term financial management is ___ management.

working capital

Which of the following are uses of cash? (Check all that apply.)

Increases in property, plant and equipment Increases in inventory Decreases in accounts payable

Which is true of taxes?

they can be one of the largest cash outflows a firm experiences

A common-base year financial statement presents items relative to a certain base, which is the _____.

Dollar amount of each item during a common base year

A(n) ________ in net profit margin will increase ROE.

Increase

Noncash items do not affect _____.

cash flow

An important accounting goal is to report financial information to users in a way that is useful for _____.

decision making

By combining common-size and base year analysis, we eliminate the effect of the _____.

overall growth

Which of the following can be used to encourage managers to act in the best interests of shareholders?

Managerial compensation tied to performance, better prospects of promotion

Although _________ __________ are often poor reflections of reality, they are often the best information available.

Accounting Numbers

The relationship between stockholders and management can best be described as a(n) ______ relationship.

Agency

If you hire a real estate company to sell your house, you are most apt to encounter which one of the following?

Agency Problem

The ROE equals the net profit margin multiplied by the total _____ turnover multiplied by the equity multiplier.

Asset

The possible goal of profit maximization _____.

Can be achieved by cost cutting, would probably be the most commonly sighted goal for a business.

______ budgeting is the process of making and managing expenditures on long-term assets.

Capital

Which three of the following are most apt to create problems when comparing financial statements for multiple firms?

Differing fiscal years Differing accounting methods Seasonality

The matching principle of GAAP requires revenues be matched with ____

Expenses

Which of the following are considered stakeholders in a company?

Government, suppliers, customers, employees.

The use of financial leverage can:

Greatly magnify both gains and losses. Increase the potential reward for investors. Increase the chance of financial distress and business failure.

On the balance sheet, assets are listed at their _____ value.

book value

The information needed to compute the profit margin can be found on the ____.

income statement

If your tax bill is $200 and your taxable income is $2,000, then your average tax rate is _____ percent.

10

The statement of cash flow explains changes in _____.

Cash and Equivalents

It is argued that, left to themselves, managers would tend to maximize the amount of resources over which they have control or, more generally, _________ power or wealth.

Corporate

Some of the cash flow generated by a firm goes back to the financial markets in the form of ______.

Dividends and debt payments

The _________ identity can help to explain why two firms with the same return on equity may not be operating in the same way.

DuPont

Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley?

Enron, Tyco, Worldcom, Adelphia, and Congress

True or false: There is only one method for preparing the statement of cash flows.

False

________ ________ are the prime source of information about a firm's financial health.

Financial Statements

The passage of the Tax Cuts and Jobs Act of 2017 was to make the federal corporate tax rate in the United States a _____ tax.

Flat

What are the two factors that impact whether managers will act in the best interest of stockholders?

How closely management goals align with stockholder goals and the way managers are compensated.

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

Liquidity

Because ownership in a corporate is spread over a huge number of shareholders, it can be argued that ______ effectively controls the firm.

Managers

Which of the following, according to the textbook, are possible financial goals for a company?

Survive. Avoid financial distress and bankruptcy. Beat the competition. Maximize sales or market share. Minimize costs. Maximize profits. Maintain steady earnings growth.

When a corporation is formed, it is granted which of the following rights?

The ability to issue stock, state citizenship for jurisdictional purposes, legal powers to sue.

What is the main goal of financial management?

To maximize current value per share of existing stock.

Which one of the following is one way in which financial managers use a common-size balance sheet?

To track changes in a firm's capital structure

How is the average income tax rate computed?

Total tax bill/Total taxable income

A benefit corporation is for profit, and has the legal attributes of accountability, _____, and purpose.

Transparency

True or false: Taxes can be a large cash outflow for a corporation.

True

Which of these questions can be answered by reviewing a firm's balance sheet?

What is the total amount of assets the firm owns? How much debt is used to finance the firm?

Which of the following is not an important question that must be asked when starting a firm?

Which computer system you are using.

Liquidity refers to the ease of changing _____.

assets to cash

A long-term liability represents a(n) _____.

debt that is not due in the coming year

It is sometimes argued that, left to themselves, managers tend to minimize the amount of resources over which they have control.

false

True or false: For financial analysis, financial statements and accounting numbers are more important than cash flows.

false

The goal of the for-profit business is to maximize ______ equity.

owners'

______ financial statements provide for comparison of firms that differ in currency type.

standardized

At the most fundamental level, firms generate ____ and spend it.

cash

Which of the following items are among the items used to compute the current ratio?

cash and accounts payable