KEY EXAM QUESTIONS FINANCIAL
MANAGEMENT
Finance - CORRECT ANSWERS Finance: the process of transferring money from
savers to borrowers through financial markets/institutions.
Difference Subject Areas in Finance - CORRECT ANSWERS Investment (Savers)
Corporate Finance (Borrowers)
Financial Markets & Institutions (Intermediaries)
3 main forms of business organizations with bonus - CORRECT ANSWERS There are three
main forms of business organizations:
1. Sole Proprietorship
2. Partnership
3. Corporations
Limited liability Companies (LLC) is hybrid between partnership and corporation.
Proprietorship and Partnership Adv and Dis - CORRECT ANSWERS Advantages:
Easy to form
Few regulations
Lower tax
Disadvantages:
Unlimited liability
Limited life
Difficult to raise capital
,Corporation Adv. and Disadvantage - CORRECT ANSWERS Advantages:
1. Limited liability
2. Unlimited life
3. Easy to raise capital
Disadvantages:
1. Hard to form
2. More regulations
3. High tax
4. Agency problem
Finance within a corporation - CORRECT ANSWERS
What is management's primary goal? - CORRECT ANSWERS Maximize the wealth of
stakeholders in a socially responsible way so that the wealth is maximized long term
Getting Capital - CORRECT ANSWERS IPO with underwriter and issuing secondary stock
difference in 3 financial statements - CORRECT ANSWERS Income statement - summarizes
a firm's revenues and expenses over a given period of time.
Balance sheet - provides a snapshot of a firm's financial position at one point in time.
Statement of cash flows - reports the impact of a firm's activities on cash flows over a given
period of time.
Difference between sales and expenses - CORRECT ANSWERS Profit
, What kind of income statements - CORRECT ANSWERS Income Statement: usually you will
find annual and quarterly income statement for a public firm (Profit and Loss Statement)
What does accounting provide us with - CORRECT ANSWERS historical health of company
Income Statement - CORRECT ANSWERS Net Sales
- Cost of Goods Sold (COGS)
= Gross Profit
- Operating Expenses (exclude Depreciation)
- Depreciation Expenses
= Operating Profit (EBIT)
- Interest Expense
= Profit Before Taxes (EBT)
- Taxes
= Net Income
COGS equation - CORRECT ANSWERS COGS= Starting Inventory + Materials Purchased-
Ending Inventory= COGS
EBIT v EBT - CORRECT ANSWERS Before interest and taxes, before taxes
How are current assets listed? - CORRECT ANSWERS How easily they can be turned into
cash
Accrued expenses go to - CORRECT ANSWERS zero at end of month
MANAGEMENT
Finance - CORRECT ANSWERS Finance: the process of transferring money from
savers to borrowers through financial markets/institutions.
Difference Subject Areas in Finance - CORRECT ANSWERS Investment (Savers)
Corporate Finance (Borrowers)
Financial Markets & Institutions (Intermediaries)
3 main forms of business organizations with bonus - CORRECT ANSWERS There are three
main forms of business organizations:
1. Sole Proprietorship
2. Partnership
3. Corporations
Limited liability Companies (LLC) is hybrid between partnership and corporation.
Proprietorship and Partnership Adv and Dis - CORRECT ANSWERS Advantages:
Easy to form
Few regulations
Lower tax
Disadvantages:
Unlimited liability
Limited life
Difficult to raise capital
,Corporation Adv. and Disadvantage - CORRECT ANSWERS Advantages:
1. Limited liability
2. Unlimited life
3. Easy to raise capital
Disadvantages:
1. Hard to form
2. More regulations
3. High tax
4. Agency problem
Finance within a corporation - CORRECT ANSWERS
What is management's primary goal? - CORRECT ANSWERS Maximize the wealth of
stakeholders in a socially responsible way so that the wealth is maximized long term
Getting Capital - CORRECT ANSWERS IPO with underwriter and issuing secondary stock
difference in 3 financial statements - CORRECT ANSWERS Income statement - summarizes
a firm's revenues and expenses over a given period of time.
Balance sheet - provides a snapshot of a firm's financial position at one point in time.
Statement of cash flows - reports the impact of a firm's activities on cash flows over a given
period of time.
Difference between sales and expenses - CORRECT ANSWERS Profit
, What kind of income statements - CORRECT ANSWERS Income Statement: usually you will
find annual and quarterly income statement for a public firm (Profit and Loss Statement)
What does accounting provide us with - CORRECT ANSWERS historical health of company
Income Statement - CORRECT ANSWERS Net Sales
- Cost of Goods Sold (COGS)
= Gross Profit
- Operating Expenses (exclude Depreciation)
- Depreciation Expenses
= Operating Profit (EBIT)
- Interest Expense
= Profit Before Taxes (EBT)
- Taxes
= Net Income
COGS equation - CORRECT ANSWERS COGS= Starting Inventory + Materials Purchased-
Ending Inventory= COGS
EBIT v EBT - CORRECT ANSWERS Before interest and taxes, before taxes
How are current assets listed? - CORRECT ANSWERS How easily they can be turned into
cash
Accrued expenses go to - CORRECT ANSWERS zero at end of month
