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114 Cards in this Set
- Front
- Back
The financial statement showing a firm's accounting value on a particulat date is the
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Balance sheet
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a current asset is
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an item currently owned by the firm
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the long term debts of a firm are liabilities that:
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do not come due for at least 12 months
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net working capital is defined as
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current assets minus current liabilities
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a ____ asset is one which cab ne wuickly converted into cash without significant loss in value
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liquid
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financial leverage refers to the
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amount of debt used in a firm's capital structure
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the common set of standards and procedures by which audited financial statements are prepared is known as the
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GAAP (generally accepted accounting principles)
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the financial statement summarizing a firm's performance over a period of time is the
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income statement
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noncash items refer to
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expenses charded against revenues that do no directly affect cash flow
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your ____ tax rate is the amount of tax payabale on the next taxable dollar you earn
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marginal
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Your ____ tax rate measures the total taxes you pay divided by your taxable income
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average
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______ refers to the cash flow that results from the firm's ogoing, normal business activies
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operating cash flow
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______ refers to the net expenditures by the firm on fixed asset purchses.
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capital spending
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_____ refers to the difference between a firm's current assets and its current liabilities
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net working capital
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____ refers to the net total cash flow of the firm available for distribution to its creditors and stockholders
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Cash flow from assets
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____ refers to the firm's interest payments less any net new borrowing
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cash flow to creditors
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____ refers to the firm's dividend payments less any net new equity raised
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cash flow to stockholders
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Cash flow from assets is also known as the firm's
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free cash flow
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earning per share is equal to
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net income divided b the total number of shares outstanding
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dividends per share is equal to dividends paid
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divided by the total number of shares outstanding
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a computer used in a business office by te office manager is classified as
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a tangible asset
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Which of the following are included in assets?
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Inventory and cash - NO AP OR EQUIP
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Which of the following are uncluded in current liabilities?
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debt payable to a mortgage company in 9 months, AP to suppliers
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TRUE STATEMENT - Inventory is a part of net working capital
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--
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TRUE STATEMENT - the greater the net working capital, the greater the ability of a firm to meet its short term obligations
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--
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an increase in total assets:
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must be ofset by an equal incrase in liabilities and shareholders' equity
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Which of the following accounts is the most liquid? inventory, building, AR, equip or patent
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AR
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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?
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Paid in surplus, common stock
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TRUE STATEMENT - Balance sheet accounts are listed in order of decreasing liquidity
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Liquidity is
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valuable to a firm even though liquid assets tend to be less profitable to own
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Which of the following are included in SHer's equity? interest paid, RE, paid in surplus, LT debt
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RE and paid in surplus
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SHer's equity
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includes all of a firm's earnings retained by the firm to date
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The higher the degree of financial leverage employed by a firm, the:
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greater the amount of debt incurred
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Book value:
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is based on historical cost
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When making financial decisions related to assets, you should
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always consider market values
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As seen on an income statement:
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depreciation reduces both the taxable income and the net income
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the earning per share will:
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increase as net income increases
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Dividends per share
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are equal to the amount of net income distributed to SHers divided by the number of shares outstanding
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According to GAAP
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income is recorded based on the realization principle
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According to GAAP costs are
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matched with revenues
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depreciation:
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is a noncash expense that is recorded on the income statement
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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
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prop ins, contractually determined mgmt salaries
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When you are making a financial decision, the most relevant tax rate is the ____ rate
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marginal
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The cash flow from assets is equal to:
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earnings before i and t plus dep - t - net capital spending - the change in net working capital
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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
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depreciation
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Cash flow from assets much be negative when:
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the cashe flow from creditors and the cash flow from SHers are both negative
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assume a firm has dep, taxes and i expense. In this case, operating cash flow:
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can be positive, negative or equal to zero
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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:
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the ending net working capital can be positive, negative or equal to zero
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Net capital spending:
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is equal to zero if the decrease in fixed assets account is equal to the dep expense for the period
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The cash flow to creditors includes the cash:
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outflow when interest is paid on outstanding debt
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an investment is acceptable if its IRR
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exceeds the required return
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All else constant, the net present value of a typical investment project increases when:
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the rate of return decreases
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The IRR:
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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
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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?
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The other methods provide results that are generally easier to understand than a net present value analysis.
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.. The payback period rule: a. discounts cash flows. b. ignores initial cost. c. always uses all possible cash flows in its calculation.
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NONE OF THESE!
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. The payback period rule accepts all investment projects in which the payback period for the cash flows is
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less than the cutoff point
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The problem of multiple IRRs can occur when
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. there is more than one sign change in the cash flows
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Activities of the firm that generate cash are known as
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souncres of cash
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Activities of the firm in which cash is spent are known as
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uses of cash
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The financial statement that summarizes the sources and uses of cash over a specified period of time is the
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statement of cash flows
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A _____ standardizes items on the income statement and balance sheet as a percentage of total sales and total assets, respectively
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common-size statement
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A _____ standardizes items on the income statement and balance sheet relative to their values as of a common point in time
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common-base year statement
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Relationships determined from a firm’s financial information and used for comparison purposes are known as:
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financial ratios
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Financial ratios that measure a firm’s ability to pay its bills over the short run without undue stress are known as _____ ratios.
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short-term solvency
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The current ratio is measured as
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current assets divided by currect liabilities
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The quick ratio is measured as
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current assets minus inventory, divided by current liabilities
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The cash ratio is measured as
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cash on hand divided by current liabilities.
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The financial ratio measured as current assets divided by average daily operating costs is the:
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interval measure
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Ratios that measure a firm’s financial leverage are known as _____ ratios.
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long-term solvency
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The financial ratio measured as total assets minus total equity, divided by total assets, is the:
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total debt ratio
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The debt-equity ratio is measured as total:
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debt divided by total equity
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The equity multiplier ratio is measured as total
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assets divided by total equity.
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Ratios that measure how efficiently a firm uses its assets to generate sales are known as _____ ratios.
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asset mgmt
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The net working capital turnover ratio is measured as:
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slaes divided by net working capital
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Ratios that measure how efficiently a firm’s management uses its assets and equity to generate bottom line net income are known as _____ ratios.
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profitability
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The U.S. government coding system that classifies firms by their specific type of business operations is known as the:
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Standard Industrial Classification system
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An increase in which one of the following is a source of cash?
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accounts payable
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Which of the following is (are) sources of cash?
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an increase in long-term debt
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Which one of the following is a use of cash?
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payment to a supplier
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Which of the following is (are) uses of cash
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payment of a note payable, repurchase of common stock, granting of credit to a customer
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Which one of the following is found in the financing activity section of a statement of cash flows?
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dividends paid
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According to the statement of cash flows, an increase in accounts receivable will _____ the cash flow from _____ activities.
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decrease; financing
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Which of the following are types of activities shown on a statement of cash flows?
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investing, liquidating, operating
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On a common-size balance sheet, all _____accounts are shown as a percentage of:
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liability; total assets.
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On a common-base year financial statement, all accounts are expressed relative to the base:
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year amount.
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Which one of the following statements is correct concerning ratio analysis?
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A single ratio is often computed differently by different individuals.
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Which of the following are liquidity ratios? interval measure, current ratio, quick ratio, net working capital to total assets
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ALL ARE!
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An increase in which one of the following accounts increases a firm’s current ratio without affecting its quick ratio?
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inventory
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A supplier, who requires payment within ten days, is most concerned with which one of the folling ratios when granint credit?
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cash
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A firm has an interval measure of 83. This means that the firm must:
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get additional financing within the next 83 days or possibly face closing the firm.
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A firm has a total debt ratio of .47. This means that that firm has 47 cents in debt for every:
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$.53 in equity.
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The long-term debt ratio is probably of most interest to a firm’s:
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mortgage holder
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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_____:
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e. .35; 3.00. LOWEST debt ratio and HIGHEST interest earned ratio
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From a cash flow position, which one of the following ratios best measures a firm's ability to pay the interest of its debts?
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cash coverage ratio
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The higher the inventory turnover measure, the:
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faster a firm sells its inventory
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Which one of the following statements is correct if a firm has a receivables turnover measure of 10?
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The firm has an average collection period of 36.5 days
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A total asset turnover measure of 1.03 means that a firm has $1.03 in:
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sales for every $1 in total assets
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If a firm wishes to increase its net working capital turnover rate, it should _____, all else constant.
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increase its sales
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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:
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is using its fixed assets more efficiently than Gerold’s Toys
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Puffy’s Pastries generates five cents of net income for every $1 in sales. Thus, Puffy's has a ____ of 5%
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profit margin
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If a firm produces a 10 percent return on assets and also a 10 percent return on equity, then the firm:
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has no debt of any kind
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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
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return on equity
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BGL Enterprises increases its operating efficiency such that costs decrease while sales remain constant. As a result, given all else constant, the:
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return on equity will increase
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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:
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Moe’s will have a lower profit margin.
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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:
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either the price per share, the earnings per share, or both changed.
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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
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has a higher market price per dollar of earnings than does one share of Turner’s
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Which two of the following are most apt to cause a firm to have a higher price-earnings ratio?
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highest prospect of firm growth and very low current earnings
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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:
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tend to cause the market price per share to rise.
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Which one of the following sets of ratios applies most directly to shareholders?
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market-to-book ratio and price-earnings ratio
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The three parts of the Du Pont identity can be generally described as:
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"financial leverage, operating efficiency and asset use efficiency. AND the equity multiplier, the profit margin and the total asset turnover.
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If a firm decreases their operating costs, all else constant, then:
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both the return on assets and the return on equity increase
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TRUE STATEMENT - Financial statements are frequently the basis used for performance evaluations.
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--
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It is easier to evaluate a firm using their financial statements when the firm:
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uses the same accounting procedures as other firms in their industry.
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Which of the following represent the most effective methods of directly evaluatin the financial performance of a firm?"
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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
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