Uwm 450 Exam 2

Front 1

The financial statement showing a firm's accounting value on a particulat date is the

Back 1

Balance sheet

Front 2

a current asset is

Back 2

an item currently owned by the firm

Front 3

the long term debts of a firm are liabilities that:

Back 3

do not come due for at least 12 months

Front 4

net working capital is defined as

Back 4

current assets minus current liabilities

Front 5

a ____ asset is one which cab ne wuickly converted into cash without significant loss in value

Back 5

liquid

Front 6

financial leverage refers to the

Back 6

amount of debt used in a firm's capital structure

Front 7

the common set of standards and procedures by which audited financial statements are prepared is known as the

Back 7

GAAP (generally accepted accounting principles)

Front 8

the financial statement summarizing a firm's performance over a period of time is the

Back 8

income statement

Front 9

noncash items refer to

Back 9

expenses charded against revenues that do no directly affect cash flow

Front 10

your ____ tax rate is the amount of tax payabale on the next taxable dollar you earn

Back 10

marginal

Front 11

Your ____ tax rate measures the total taxes you pay divided by your taxable income

Back 11

average

Front 12

______ refers to the cash flow that results from the firm's ogoing, normal business activies

Back 12

operating cash flow

Front 13

______ refers to the net expenditures by the firm on fixed asset purchses.

Back 13

capital spending

Front 14

_____ refers to the difference between a firm's current assets and its current liabilities

Back 14

net working capital

Front 15

____ refers to the net total cash flow of the firm available for distribution to its creditors and stockholders

Back 15

Cash flow from assets

Front 16

____ refers to the firm's interest payments less any net new borrowing

Back 16

cash flow to creditors

Front 17

____ refers to the firm's dividend payments less any net new equity raised

Back 17

cash flow to stockholders

Front 18

Cash flow from assets is also known as the firm's

Back 18

free cash flow

Front 19

earning per share is equal to

Back 19

net income divided b the total number of shares outstanding

Front 20

dividends per share is equal to dividends paid

Back 20

divided by the total number of shares outstanding

Front 21

a computer used in a business office by te office manager is classified as

Back 21

a tangible asset

Front 22

Which of the following are included in assets?

Back 22

Inventory and cash - NO AP OR EQUIP

Front 23

Which of the following are uncluded in current liabilities?

Back 23

debt payable to a mortgage company in 9 months, AP to suppliers

Front 24

TRUE STATEMENT - Inventory is a part of net working capital

Back 24

--

Front 25

TRUE STATEMENT - the greater the net working capital, the greater the ability of a firm to meet its short term obligations

Back 25

--

Front 26

an increase in total assets:

Back 26

must be ofset by an equal incrase in liabilities and shareholders' equity

Front 27

Which of the following accounts is the most liquid? inventory, building, AR, equip or patent

Back 27

AR

Front 28

Which of the following accounts generally increase in calue when a firm sells shares of its common stock at a price in excess of par value? RE, Paid in surplus, common stock, preferred stock?

Back 28

Paid in surplus, common stock

Front 29

TRUE STATEMENT - Balance sheet accounts are listed in order of decreasing liquidity

Front 30

Liquidity is

Back 30

valuable to a firm even though liquid assets tend to be less profitable to own

Front 31

Which of the following are included in SHer's equity? interest paid, RE, paid in surplus, LT debt

Back 31

RE and paid in surplus

Front 32

SHer's equity

Back 32

includes all of a firm's earnings retained by the firm to date

Front 33

The higher the degree of financial leverage employed by a firm, the:

Back 33

greater the amount of debt incurred

Front 34

Book value:

Back 34

is based on historical cost

Front 35

When making financial decisions related to assets, you should

Back 35

always consider market values

Front 36

As seen on an income statement:

Back 36

depreciation reduces both the taxable income and the net income

Front 37

the earning per share will:

Back 37

increase as net income increases

Front 38

Dividends per share

Back 38

are equal to the amount of net income distributed to SHers divided by the number of shares outstanding

Front 39

According to GAAP

Back 39

income is recorded based on the realization principle

Front 40

According to GAAP costs are

Back 40

matched with revenues

Front 41

depreciation:

Back 41

is a noncash expense that is recorded on the income statement

Front 42

Fixed costs in the short run generally include which of the following? manf wages, cost of materials used in production, prop insurance, contractuaclly determined mgmt salaries

Back 42

prop ins, contractually determined mgmt salaries

Front 43

When you are making a financial decision, the most relevant tax rate is the ____ rate

Back 43

marginal

Front 44

The cash flow from assets is equal to:

Back 44

earnings before i and t plus dep - t - net capital spending - the change in net working capital

Front 45

An increse in which one of the following will cause the cash flow from assets to increase? dep, change in net working capital, net working capital, taxes, costs

Back 45

depreciation

Front 46

Cash flow from assets much be negative when:

Back 46

the cashe flow from creditors and the cash flow from SHers are both negative

Front 47

assume a firm has dep, taxes and i expense. In this case, operating cash flow:

Back 47

can be positive, negative or equal to zero

Front 48

a firm starts its years with a positive net working capital. During the year, the firm acquires more short term debt than it does short term assets, This means that:

Back 48

the ending net working capital can be positive, negative or equal to zero

Front 49

Net capital spending:

Back 49

is equal to zero if the decrease in fixed assets account is equal to the dep expense for the period

Front 50

The cash flow to creditors includes the cash:

Back 50

outflow when interest is paid on outstanding debt

Front 51

an investment is acceptable if its IRR

Back 51

exceeds the required return

Front 52

All else constant, the net present value of a typical investment project increases when:

Back 52

the rate of return decreases

Front 53

The IRR:

Back 53

Is the rate generated solely by the cash flows of an investment AND is the rate that casues the net present value of a project to exactly equal zero

Front 54

Given that the net present value (NPV) is generally considered to be the best method of analysis, why should you still use the other methods?

Back 54

The other methods provide results that are generally easier to understand than a net present value analysis.

Front 55

.. The payback period rule: a. discounts cash flows. b. ignores initial cost. c. always uses all possible cash flows in its calculation.

Back 55

NONE OF THESE!

Front 56

. The payback period rule accepts all investment projects in which the payback period for the cash flows is

Back 56

less than the cutoff point

Front 57

The problem of multiple IRRs can occur when

Back 57

. there is more than one sign change in the cash flows

Front 58

Activities of the firm that generate cash are known as

Back 58

souncres of cash

Front 59

Activities of the firm in which cash is spent are known as

Back 59

uses of cash

Front 60

The financial statement that summarizes the sources and uses of cash over a specified period of time is the

Back 60

statement of cash flows

Front 61

A _____ standardizes items on the income statement and balance sheet as a percentage of total sales and total assets, respectively

Back 61

common-size statement

Front 62

A _____ standardizes items on the income statement and balance sheet relative to their values as of a common point in time

Back 62

common-base year statement

Front 63

Relationships determined from a firm’s financial information and used for comparison purposes are known as:

Back 63

financial ratios

Front 64

Financial ratios that measure a firm’s ability to pay its bills over the short run without undue stress are known as _____ ratios.

Back 64

short-term solvency

Front 65

The current ratio is measured as

Back 65

current assets divided by currect liabilities

Front 66

The quick ratio is measured as

Back 66

current assets minus inventory, divided by current liabilities

Front 67

The cash ratio is measured as

Back 67

cash on hand divided by current liabilities.

Front 68

The financial ratio measured as current assets divided by average daily operating costs is the:

Back 68

interval measure

Front 69

Ratios that measure a firm’s financial leverage are known as _____ ratios.

Back 69

long-term solvency

Front 70

The financial ratio measured as total assets minus total equity, divided by total assets, is the:

Back 70

total debt ratio

Front 71

The debt-equity ratio is measured as total:

Back 71

debt divided by total equity

Front 72

The equity multiplier ratio is measured as total

Back 72

assets divided by total equity.

Front 73

Ratios that measure how efficiently a firm uses its assets to generate sales are known as _____ ratios.

Back 73

asset mgmt

Front 74

The net working capital turnover ratio is measured as:

Back 74

slaes divided by net working capital

Front 75

Ratios that measure how efficiently a firm’s management uses its assets and equity to generate bottom line net income are known as _____ ratios.

Back 75

profitability

Front 76

The U.S. government coding system that classifies firms by their specific type of business operations is known as the:

Back 76

Standard Industrial Classification system

Front 77

An increase in which one of the following is a source of cash?

Back 77

accounts payable

Front 78

Which of the following is (are) sources of cash?

Back 78

an increase in long-term debt

Front 79

Which one of the following is a use of cash?

Back 79

payment to a supplier

Front 80

Which of the following is (are) uses of cash

Back 80

payment of a note payable, repurchase of common stock, granting of credit to a customer

Front 81

Which one of the following is found in the financing activity section of a statement of cash flows?

Back 81

dividends paid

Front 82

According to the statement of cash flows, an increase in accounts receivable will _____ the cash flow from _____ activities.

Back 82

decrease; financing

Front 83

Which of the following are types of activities shown on a statement of cash flows?

Back 83

investing, liquidating, operating

Front 84

On a common-size balance sheet, all _____accounts are shown as a percentage of:

Back 84

liability; total assets.

Front 85

On a common-base year financial statement, all accounts are expressed relative to the base:

Back 85

year amount.

Front 86

Which one of the following statements is correct concerning ratio analysis?

Back 86

A single ratio is often computed differently by different individuals.

Front 87

Which of the following are liquidity ratios? interval measure, current ratio, quick ratio, net working capital to total assets

Back 87

ALL ARE!

Front 88

An increase in which one of the following accounts increases a firm’s current ratio without affecting its quick ratio?

Back 88

inventory

Front 89

A supplier, who requires payment within ten days, is most concerned with which one of the folling ratios when granint credit?

Back 89

cash

Front 90

A firm has an interval measure of 83. This means that the firm must:

Back 90

get additional financing within the next 83 days or possibly face closing the firm.

Front 91

A firm has a total debt ratio of .47. This means that that firm has 47 cents in debt for every:

Back 91

$.53 in equity.

Front 92

The long-term debt ratio is probably of most interest to a firm’s:

Back 92

mortgage holder

Front 93

A banker considering loaning a firm money for ten years would most likely prefer the firm have a debt ratio of _____ and a times interest earned ratio of_____:

Back 93

e. .35; 3.00. LOWEST debt ratio and HIGHEST interest earned ratio

Front 94

From a cash flow position, which one of the following ratios best measures a firm's ability to pay the interest of its debts?

Back 94

cash coverage ratio

Front 95

The higher the inventory turnover measure, the:

Back 95

faster a firm sells its inventory

Front 96

Which one of the following statements is correct if a firm has a receivables turnover measure of 10?

Back 96

The firm has an average collection period of 36.5 days

Front 97

A total asset turnover measure of 1.03 means that a firm has $1.03 in:

Back 97

sales for every $1 in total assets

Front 98

If a firm wishes to increase its net working capital turnover rate, it should _____, all else constant.

Back 98

increase its sales

Front 99

Bob's Toys has a fixed asset turnover rate of 1.2 and a total asset turnover rate of .84. Gerold's Toys has a fixed asset turnover rate of 1.1 and a total asset turnover rate of .96. Both companies have similar operations. Bob's Toys:

Back 99

is using its fixed assets more efficiently than Gerold’s Toys

Front 100

Puffy’s Pastries generates five cents of net income for every $1 in sales. Thus, Puffy's has a ____ of 5%

Back 100

profit margin

Front 101

If a firm produces a 10 percent return on assets and also a 10 percent return on equity, then the firm:

Back 101

has no debt of any kind

Front 102

If shareholders want to know how much profit a firm is making on their entire investment in the firm, the SHers should look a t the

Back 102

return on equity

Front 103

BGL Enterprises increases its operating efficiency such that costs decrease while sales remain constant. As a result, given all else constant, the:

Back 103

return on equity will increase

Front 104

The only difference between Joe’s and Moe’s is that Joe’s has old, fully depreciated equipment. Moe’s just purchased all new equipment which will be depreciated over eight years. Assuming all else equal:

Back 104

Moe’s will have a lower profit margin.

Front 105

Last year, Alfred’s Automotive had a price-earnings ratio of 15. This year, the price earnings ratio is 18. Based on this info, it can be stated with certainty that:

Back 105

either the price per share, the earnings per share, or both changed.

Front 106

Turner’s Inc. has a price-earnings ratio of 16. Alfred’s Co. has a price-earnings ratio of 19. Thus, you can state with certainty that one share of stock in Alfred’s

Back 106

has a higher market price per dollar of earnings than does one share of Turner’s

Front 107

Which two of the following are most apt to cause a firm to have a higher price-earnings ratio?

Back 107

highest prospect of firm growth and very low current earnings

Front 108

Vinnie’s Motors has a market-to-book ratio of 3. The book value per share is $4.00.This means that a $1 increase in the book value per share will:

Back 108

tend to cause the market price per share to rise.

Front 109

Which one of the following sets of ratios applies most directly to shareholders?

Back 109

market-to-book ratio and price-earnings ratio

Front 110

The three parts of the Du Pont identity can be generally described as:

Back 110

"financial leverage, operating efficiency and asset use efficiency. AND the equity multiplier, the profit margin and the total asset turnover.

Front 111

If a firm decreases their operating costs, all else constant, then:

Back 111

both the return on assets and the return on equity increase

Front 112

TRUE STATEMENT - Financial statements are frequently the basis used for performance evaluations.

Back 112

--

Front 113

It is easier to evaluate a firm using their financial statements when the firm:

Back 113

uses the same accounting procedures as other firms in their industry.

Front 114

Which of the following represent the most effective methods of directly evaluatin the financial performance of a firm?"

Back 114

comparing the current financial ratios to those of the same firm from prior time periods AND comparing a firm's financial ratios to those of other firms in the firm's peer group who have similar operations