CORPORATE FINANC 2 UPDATED ACTUAL EXAM QUESTIONS CORRECT ANSWERS GRADED
A PLUS
Question:
corporations is communicated through _________________ _____________.
Answer:
financial statements · _______________ statements are compiled in accordance with
_____________ ____________ ______________ _______________. -✓✓Financial statements;
generally accepted accounting principles GAAP is a collection of rules and procedures which are
overseen by authorities such as the _________________ __________________
____________________ __________________ (FASB) and the _______________
_________________ _________________ (SEC). -✓✓Financial Accounting Standards Board;
Securities Exchange Commission Among the more prevalent accounting principles are:
(6-ACCMUR) -✓✓accounting period conservatism consistency matching understandability
reliability Required statements consists of: (4-BISS) -✓✓balance sheet income statement statement
of owner's equity statement of cash flows Public companies are required to periodically issue a
_______________ ______________, or statement of financial position, describing at a point in time
the assets, liabilities, and owners' equity of the enterprise. -✓✓balance sheet Companies must also
report their results of operations for a period via an _______________ ______________.
-✓✓income statement The _______________ ________________ shows all sources of revenues
and expenses incurred for the period in question. -✓✓income statement Income is reported using
_______________ accounting, meaning that revenue is recognized when earned and expenses are
realized when incurred. -✓✓accrual A third required statement, the ______________ _________
___________ _____________ reports investments by stockholders into the firm and distributions
(_______________) paid to those stockholders. -✓✓statement of owner's equity; dividends A
______________ _____ ____________ __________ reveals a company's sources and uses of cash
and generally is used to isolate the changes in balance sheets from period to period. -✓✓statement
of cash flows Financial statements are analyzed to present information more _______________ than
can be gleaned from the statements themselves. -✓✓succinctly The most frequently employed tool
for analyzing financial statements is ______________ analysis. -✓✓ratio Financial ratios are
subdivided into three types: -✓✓operating performance ratios liquidity ratios financial strength
ratios ________________ ______________ _____________ indicate how well a company is
converting its resources into results - sales, income, or the like. -✓✓Operating performance ratios
Categories of operating performance ratios include ___________ ratios (sales/assets) and
__________ ratios (net income/sales). -✓✓turnover; return ________________ ratios present the
short-term financial stability of an enterprise, focusing on current assets and current liabilities.
-✓✓Liquidity ______________ ______________ ratios indicate the capitalization of a company
, (long-term debt and equity). -✓✓Financial strength A company's financial reports can be compared
with industry averages or against its own ________________ _______________. -✓✓historical
performance Analysts, managers, and investors both internal to and external to a firm have interests
in making ______________ _______________. -✓✓financial projections The medium used to look
into an organization's financial future is the _____ ________ _____________ _____________.
-✓✓pro forma financial statement Historical company-specific ________ ______________ is used
as one means of estimating the future. -✓✓trend analysis Better projections can generally be derived
by first studying the environment in which a firm competes both for _____________ and
_____________ factors. -✓✓quantitative; qualitative ________ ________ is what type of products
are sold, how stable is the industry, on what basis do firms compete, etc. -✓✓Industry definition
___________ influence is how is the economy affecting the industry, and what are the marketing
strategies of the competitors? -✓✓Sales One should evaluate the _________ __________ of the
industry - is the industry more susceptible to a drop in volume or a drop in prices? -✓✓cost structure
Following an industry assessment, one should look at the company from the same perspective,
assessing its: (5-PMFMC) -✓✓product line management facilities marketing strategy cost structure
After the qualitative analysis is completed, an analyst has the basis on which to perform quantitative
analysis. The ___________ ___________ must be determined. -✓✓time horizon Having selected a
horizon, the analyst should apply the assumptions made during the qualitative phase to the numbers.
The _______________ statement is projected first. - ✓✓income Because it is the largest number in
the projection, __________________ should be the most carefully forecasted. -✓✓sales From sales,
expenses can be projected so that they are historically consistent, and may involve the use of
_________________ ________________. -✓✓statistical methods The ______________
________________ is typically projected after the ________________ ________________.
-✓✓balance sheet; income statement Trends and ___________ are again employed to forecast the
numbers. -✓✓ratios The balance sheet requires the use of a ___________________
_______________ in order to make it balance. -✓✓plug figure The plug represents
______________ cash or deficit capital given the forecaster's assumptions. -✓✓excess After
projecting the balance sheet, an analyst should prepare a pro forma ________________
_______________ analysis. -✓✓cash flow Projecting financial statements requires many
___________________. - ✓✓assumptions Assumptions should be challenged to measure the
bottom-line impact of changes in key variables in a process known as _________________
_________________. - ✓✓sensitivity analysis The goal of a business enterprise should be to
__________ ____________ for its shareholders. -✓✓create value _____________ is created when a
firm is able to generate returns in excess of those required by the providers of capital. -✓✓Value
Excess returns can be the result of enhanced _______________, ______________ risk, or
______________ efficiencies. -✓✓enhanced earnings reduced risks increased efficiencies
Management has the responsibility to ___________ stockholders' capital so as to add value to their
holdings. -✓✓invest If the firm has no investment opportunities that will satisfy the return criteria of
the stockholders, at least in theory, then management should respond by returning the investors their
capital for ___________________ elsewhere. -✓✓investment Value can be created via
______________ side of the balance sheet. -✓✓either Through the left side of the balance sheet,
managers create value by investing in _____________ that produce income, generate cash flows or
A PLUS
Question:
corporations is communicated through _________________ _____________.
Answer:
financial statements · _______________ statements are compiled in accordance with
_____________ ____________ ______________ _______________. -✓✓Financial statements;
generally accepted accounting principles GAAP is a collection of rules and procedures which are
overseen by authorities such as the _________________ __________________
____________________ __________________ (FASB) and the _______________
_________________ _________________ (SEC). -✓✓Financial Accounting Standards Board;
Securities Exchange Commission Among the more prevalent accounting principles are:
(6-ACCMUR) -✓✓accounting period conservatism consistency matching understandability
reliability Required statements consists of: (4-BISS) -✓✓balance sheet income statement statement
of owner's equity statement of cash flows Public companies are required to periodically issue a
_______________ ______________, or statement of financial position, describing at a point in time
the assets, liabilities, and owners' equity of the enterprise. -✓✓balance sheet Companies must also
report their results of operations for a period via an _______________ ______________.
-✓✓income statement The _______________ ________________ shows all sources of revenues
and expenses incurred for the period in question. -✓✓income statement Income is reported using
_______________ accounting, meaning that revenue is recognized when earned and expenses are
realized when incurred. -✓✓accrual A third required statement, the ______________ _________
___________ _____________ reports investments by stockholders into the firm and distributions
(_______________) paid to those stockholders. -✓✓statement of owner's equity; dividends A
______________ _____ ____________ __________ reveals a company's sources and uses of cash
and generally is used to isolate the changes in balance sheets from period to period. -✓✓statement
of cash flows Financial statements are analyzed to present information more _______________ than
can be gleaned from the statements themselves. -✓✓succinctly The most frequently employed tool
for analyzing financial statements is ______________ analysis. -✓✓ratio Financial ratios are
subdivided into three types: -✓✓operating performance ratios liquidity ratios financial strength
ratios ________________ ______________ _____________ indicate how well a company is
converting its resources into results - sales, income, or the like. -✓✓Operating performance ratios
Categories of operating performance ratios include ___________ ratios (sales/assets) and
__________ ratios (net income/sales). -✓✓turnover; return ________________ ratios present the
short-term financial stability of an enterprise, focusing on current assets and current liabilities.
-✓✓Liquidity ______________ ______________ ratios indicate the capitalization of a company
, (long-term debt and equity). -✓✓Financial strength A company's financial reports can be compared
with industry averages or against its own ________________ _______________. -✓✓historical
performance Analysts, managers, and investors both internal to and external to a firm have interests
in making ______________ _______________. -✓✓financial projections The medium used to look
into an organization's financial future is the _____ ________ _____________ _____________.
-✓✓pro forma financial statement Historical company-specific ________ ______________ is used
as one means of estimating the future. -✓✓trend analysis Better projections can generally be derived
by first studying the environment in which a firm competes both for _____________ and
_____________ factors. -✓✓quantitative; qualitative ________ ________ is what type of products
are sold, how stable is the industry, on what basis do firms compete, etc. -✓✓Industry definition
___________ influence is how is the economy affecting the industry, and what are the marketing
strategies of the competitors? -✓✓Sales One should evaluate the _________ __________ of the
industry - is the industry more susceptible to a drop in volume or a drop in prices? -✓✓cost structure
Following an industry assessment, one should look at the company from the same perspective,
assessing its: (5-PMFMC) -✓✓product line management facilities marketing strategy cost structure
After the qualitative analysis is completed, an analyst has the basis on which to perform quantitative
analysis. The ___________ ___________ must be determined. -✓✓time horizon Having selected a
horizon, the analyst should apply the assumptions made during the qualitative phase to the numbers.
The _______________ statement is projected first. - ✓✓income Because it is the largest number in
the projection, __________________ should be the most carefully forecasted. -✓✓sales From sales,
expenses can be projected so that they are historically consistent, and may involve the use of
_________________ ________________. -✓✓statistical methods The ______________
________________ is typically projected after the ________________ ________________.
-✓✓balance sheet; income statement Trends and ___________ are again employed to forecast the
numbers. -✓✓ratios The balance sheet requires the use of a ___________________
_______________ in order to make it balance. -✓✓plug figure The plug represents
______________ cash or deficit capital given the forecaster's assumptions. -✓✓excess After
projecting the balance sheet, an analyst should prepare a pro forma ________________
_______________ analysis. -✓✓cash flow Projecting financial statements requires many
___________________. - ✓✓assumptions Assumptions should be challenged to measure the
bottom-line impact of changes in key variables in a process known as _________________
_________________. - ✓✓sensitivity analysis The goal of a business enterprise should be to
__________ ____________ for its shareholders. -✓✓create value _____________ is created when a
firm is able to generate returns in excess of those required by the providers of capital. -✓✓Value
Excess returns can be the result of enhanced _______________, ______________ risk, or
______________ efficiencies. -✓✓enhanced earnings reduced risks increased efficiencies
Management has the responsibility to ___________ stockholders' capital so as to add value to their
holdings. -✓✓invest If the firm has no investment opportunities that will satisfy the return criteria of
the stockholders, at least in theory, then management should respond by returning the investors their
capital for ___________________ elsewhere. -✓✓investment Value can be created via
______________ side of the balance sheet. -✓✓either Through the left side of the balance sheet,
managers create value by investing in _____________ that produce income, generate cash flows or
