1. A balance sheet shows  the financial position of a company
2. A firm had EBIT of $1,000 paid taxes of $225 expensed depreciation at $13 and its gross fixed assets increased by $25. What was the firm’s operating cash flow  $788
3. A firm has an average collection period of 13 days. The industry average ACP is 27 days. Which of the following statements is true given this information?   The firm could probably increase its sales by relaxing its strict accounts receivable policy.
4. A firm that is efficient in inventory management will have:  a high inventory turnover and a low days sales in inventory ratio
5. ABC Inc. has $100 in cash on its balance sheet at the end of 2009. During 2010, the firm issued $450 in common stock, reduced its notes payable by $40, purchased fixed assets in the amount of $750, and had cash flows from operating activities of $315. How much cash did ABC Inc. have on its balance sheet at the end of 2010?  $75
6. All of the following are advantages to organizing as a corporation EXCEPT   Double taxation
7. All of the following are cash flows associated with financing activities EXCEPT  Increase in Accounts Payable
8. All of the following are reasons that one should be cautious in interpreting financial statements EXCEPT  All of these are reasons to be cautious in interpreting financial statements
9. All of the statements below are correct EXCEPT:  Market stock price is useful because it is used to adjust the value of equity on the balance sheet so that the correct market value is provided in the common stock account
10. An equity-financed firm will   Pay more in income taxes than an otherwise identical debt-financed firm
11. An income statement shows  The performance of a company over a period of time
12. An investor wanting large returns will be interested in companies that have  High ROEs
13. As individual legal entities corporations assume liability for their own debts so the shareholders hold  only limited liability
14. As individual legal entities, corporations assume liability for their own debts, so the shareholders hold  Only limited liability
15. Assume a company’s total asset turnover is equal to 4.75. What is the correct interpretation of this ratio?  Each dollar of total assets generates $4.75 of sales
16. Assume inventory turnover ratio is equal to 10. What is the days’ sales in inventory equal to?    36.5 days
17. Assume that companies A and B both have the same dollar value of total assets and both have return on assets equal to 16%. Further assume that company A has a return on equity also equal to 16%, which company B has a return on equity equal to 22%. Based on this information we would most likely conclude that  Company B has more debt than Company A
18. Assume that company X had accounts receivable turnover equal to 12 in 2014, and equal to 14 in 2015. Further assume that the relevant industry average for this ratio is 20. Based on this information we would most likely conclude that company X  should be more careful with awarding credit to its customers, or should improve its collecting of accounts receivable
19. Assume that for year 2015 company A has a current ratio equal to 1.5, while company B has a current ratio equal to 2.5. Based on this information we would most likely conclude that:  Company B has a better liquidity position than company A
20. Decisions made by financial managers should primarily focus on increasing what?  Market value per share of outstanding stocks
21. Earnings per share is computed as  Net income available to common shareholders divided by the number of common shares outstanding
22. Example of aligning managers personal interests with those of the owners offer managers shares of common stock of the firm
23. Financial management involves decisions about which of the following?  Which projects to fund, type of capita, and min tax
24. Financial statements of a corporation can be typically found in  The annual Report
25. Firm A and Firm B have the same total assets, ROA and profit margin (greater than 0). However, Firm B has a higher debt ratio and interest expense than firm A. Which of the following statements is correct?  Firm B must have higher ROE than Firm A
26. Firms with high PE ratios _____________   usually are expected to experience rapid increases in future dividends and/or earnings growth
27. Firms with high ROE ratios  usually are expected to experience rapid increases in future dividends and/or earnings growth
28. For publicly traded firms, which of these ratios measure what investors think of the company’s future performance and risk?  Market value ratios
29. For which of the following would one expect the book value of the asset to differ widely from its market value?  Fixed assets
30. For which of the following would one expect the book value of the asset to differ widely from its market value?  Fixed Assets
31. From the perspective of control, the best form of business organization is the  Sole proprietorship
32. If a company reports a large amount of net income on its income statement during a year, the firm will have  Any of these scenarios are possible (zero cash flow, negative cash flow, positive cash flow)
33. Items on the balance sheet are usually listed  In the order of liquidity
34. Maximizing owners’ equity value means carefully considering all of the following EXCEPT  How best to increase the firm’s risk
35. Net working capital is computed as  Current assets minus current liabilities
36. Not all cash a company generates will be returned to the investors. Which of the following will not reduce the amount of capital returned to the investors?  Dividends
37. Subarea of finance helps facilitate the capital flows between investors and companies  financial institutions and markets
38. Subarea of finance involves methods and techniques to make appropriate decision about what kind of securities to own, which firs securities to buy and how to be paid back in the form the investor wishes  Investments
39. The biggest disadvantage of the sole proprietorship is   Unlimited liability
40. The calculation of free cash flow attempts to estimate  The amount of cash generated by the company that could be distributed to investors without jeopardizing future operations of the company
41. The cash paid in capital expenditures to improve fixed assets, listed on the cash flow statement, can be computed as    Gross fixed assets from this year minus gross fixed assets from last year
42. The difference between ROE and ROA is that  ROE takes into account the impact of financial leverage
43. The most common type of business in the United States is the  Sole proprietorship
44. The portion of a company’s profits that are kept by the company rather than distributed to the stockholders as cash dividends is referred to as  Retained earnings
45. The practice generally known as double taxation is due to  Corporate incomes being taxed as the corporate level, then again at the shareholder level when corporate profits are paid out as dividends
46. These are cash inflows and outflows associated with buying and selling of fixed or other longer-term assets  Cash flows from investing activities
47. This group is elected by stockholders to oversee management in a corporation  Board of directors
48. This is a general term for securities like stocks, bonds, and other assets that represent ownership in a cash flow  financial asset
49. This type of business organization is entirely legally independent from its owners  Public corporations
50. Trend analysis  is used to evaluate changes in a company’s performance over time
51. What are the consequences of paying additional dividends? The firm will have a lower amount of internally generated cash to support firm growth.
52. What is the difference in perspective between finance and accounting   Timing
53. What would be the most likely result of a company’s decision to use accelerated (as opposed to straight line) depreciation?  It would shift some of the current and near future tax burden into later years
54. Which financial statement reports a firm’s assets, liabilities, and equity at a particular point in time  balance sheet
55. Which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period  Statement of Cash Flows
56. Which financial statement shows the total revenues that a firm earns and the total expenses the firm incurs to generate those revenues over a specific period of time-generally one year?  Income statement
57. Which is correct?  Sole proprietorship gets sued, owner is liable
58. Which of the activities below is the most likely to result in a series of depreciation expenses over time?  Acquisition of an office computer
59. Which of the assets below is typically the most liquid?  Accounts Receivable
60. Which of the below IS NOT included in the calculation of operating income?   Interest Expense
61. Which of the below is the LEAST LIKELY to be a user of a company’s financial ratios?  The Internal Revenue Service (IRS) of the federal government
62. Which of the below represents a cash outflow?  A decline in accounts payable
63. Which of the below represents a cash outflow?  A decline in accounts payable
64. Which of the below should be the most alarming to a company’s CEO looking at the company’s cash flow statement?  A negative total for the operating activities section
65. Which of the below would be the LEAST LIKELY to lead to a higher times interest earned ratio?  A lower tax rate
66. Which of the following is a use of cash?  The firm decreases its accrued wages and taxes
67. Which of the following is an example of a capital structure   20% debt 80% equity
68. Which of the following is an example of aligning managers’ personal interests with those of the owners  Offer the managers an equity stake in the firm
69. which of the following is not true when developing a time line  cash outflows are designated with a positive number
70. Which of the following refer to ratios that measure the relationship between a firm’s liquid (or current) assets and its current liabilities  Liquidity
71. Which of the following statements is correct?  A high average payment period and a low accounts payable turnover are a sign of good management
72. Which of the statements below is correct?  Having a higher debt ratio is neither good nor bad
73. Which of these statements is true?  A high inventory turnover ratio or a low days’ sales in inventory is a sign of good inventory management.
74. Which ratio assesses how efficiently a firm uses its fixed assets  Fixed asset turnover
75. Which ratio measures a firm’s ability to pay short-term obligations with its available cash and market securities  Cash
76. Which ratio measures how many days inventory is held before the final product is sold?    Days’ sales in inventory
77. Which ratio measures the number of dollars of operating earnings available to meet each dollar of interest obligations on the firm’s debt?  Times interest earned
78. Which ratio measures the number of dollars of sales produced per dollar of inventory  Inventory turnover
79. Which ratio measures the number of dollars of sales produced per dollar of inventory?  Inventory turnover
80. Which statement is incorrect regarding hybrid organizations   They offer the same type of control as a sole proprietorship
81. Which statement is true?    Extremely high levels of liquidity guard against liquidity liquidity crises, but at the cost of lower return on assets
82. Which type of ratio measures a firm’s ability to pay off short-term obligations without relying on inventory sales? Quick or acid test
83. Which type of ratio measures the dollars of current assets available to pay each dollar of current liabilities?  Current

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