FINANCIAL MANAGEMENT EXAM 1 PRACTICE
QUESTIONS AND DETAILED SOLUTIONS
◉ balance sheet: purpose and description.
Answer: financial position of company at certain point of time
◉ balance sheet equation.
Answer: A = L + OE
◉ liquidity.
Answer: speed and ease of assets turning into cash
◉ define and calculate working capital.
Answer: CA - CL
usually positive in a healthy firm
◉ what is meant by financial leverage.
Answer: use of debt to finance operations and investments
◉ market value versus book value.
Answer: market is current worth, book is historical cost
, ◉ income statement: purpose, GAAP, limitations.
Answer: firm's performance over period, results of operations, GAAP,
time and costs
◉ income statement equation.
Answer: revenue - expense = income
◉ why accounting income is not the same as cash flows.
Answer: under GAAP accrual basis, revenue is recognized at the time
of sale, not necessarily at the time of collection... not always
reflective of actual inflows and outflows during the particular period
◉ calculate net income.
Answer: Revenue - expences
◉ determine the change in retained earnings.
Answer:
◉ what is meant by earnings management?.
Answer: controversial practice where corporation smooths out
earnings growth, manipulate numbers
QUESTIONS AND DETAILED SOLUTIONS
◉ balance sheet: purpose and description.
Answer: financial position of company at certain point of time
◉ balance sheet equation.
Answer: A = L + OE
◉ liquidity.
Answer: speed and ease of assets turning into cash
◉ define and calculate working capital.
Answer: CA - CL
usually positive in a healthy firm
◉ what is meant by financial leverage.
Answer: use of debt to finance operations and investments
◉ market value versus book value.
Answer: market is current worth, book is historical cost
, ◉ income statement: purpose, GAAP, limitations.
Answer: firm's performance over period, results of operations, GAAP,
time and costs
◉ income statement equation.
Answer: revenue - expense = income
◉ why accounting income is not the same as cash flows.
Answer: under GAAP accrual basis, revenue is recognized at the time
of sale, not necessarily at the time of collection... not always
reflective of actual inflows and outflows during the particular period
◉ calculate net income.
Answer: Revenue - expences
◉ determine the change in retained earnings.
Answer:
◉ what is meant by earnings management?.
Answer: controversial practice where corporation smooths out
earnings growth, manipulate numbers
