SPMA 2P27 Mid-Term Exam Questions with Correct Solutions| Latest Update Graded A+
What does a balance sheet show and what key financial metrics does it show? The financial
condition of a business and it shows liquidity and cash.
What does an income statement show and what key financial metrics does it show? The
profit/loss over a given length of time and it shows what the earnings are accomplishing.
What does a cash flow statement show and what are the key financial metrics does it show?
The change in cash position and it shows where the cash is coming from.
What does the NWC stand for? and What formula is it in? It stands for the Net Working
Capital or the Working Capital and it is a part of the NWC = Current Assets - Current Liabilities
formula.
Income = ? - ? Income = Revenue - Expenses
What are the 3 sections to the Income Statement? 1. Revenues and expenses from
operations
2. Nonoperating section like financing costs and income from investments
3. Net income of the business
Define financing activities, dividends, paid out, and new stock issue Financing Activities -
Cash flows to and from creditors and owners (changes in the firm's debt and equity)
Dividends - paying portions of profits to shareholders
Paid Out - Negative cash flow
, New Stock Issue - Positive cash flow
What are 5 types of financial ratios? 1. Liquidity
2. Activity
3. Financial Leverage
4. Profitability
5. Value of the firm
Define the Liquidity ratio and give the formula Measure the ability of a business to meet
short-term financial obligations
Current Ratio (CR) = Total Current Assets/Total Liabilities
Under other measures of liquidity give the Acid Test Ratio (aka quick ratio) = Total current
assets - inventories/current liabilities
(higher number is better)
Under other measures of liquidity give the Solvency Ratio = Net worth / total assets
(the lower the number the better)
What are the Activity Ratios for? Measure of how effectively a company manages its assets
What is the Receivables turnover ratio (RT) and what does it tell us? RT = Revenues /
Receivables (avg) and it tells us the average collection period, which equals the number of days
in the period / the RT ratio
What does a balance sheet show and what key financial metrics does it show? The financial
condition of a business and it shows liquidity and cash.
What does an income statement show and what key financial metrics does it show? The
profit/loss over a given length of time and it shows what the earnings are accomplishing.
What does a cash flow statement show and what are the key financial metrics does it show?
The change in cash position and it shows where the cash is coming from.
What does the NWC stand for? and What formula is it in? It stands for the Net Working
Capital or the Working Capital and it is a part of the NWC = Current Assets - Current Liabilities
formula.
Income = ? - ? Income = Revenue - Expenses
What are the 3 sections to the Income Statement? 1. Revenues and expenses from
operations
2. Nonoperating section like financing costs and income from investments
3. Net income of the business
Define financing activities, dividends, paid out, and new stock issue Financing Activities -
Cash flows to and from creditors and owners (changes in the firm's debt and equity)
Dividends - paying portions of profits to shareholders
Paid Out - Negative cash flow
, New Stock Issue - Positive cash flow
What are 5 types of financial ratios? 1. Liquidity
2. Activity
3. Financial Leverage
4. Profitability
5. Value of the firm
Define the Liquidity ratio and give the formula Measure the ability of a business to meet
short-term financial obligations
Current Ratio (CR) = Total Current Assets/Total Liabilities
Under other measures of liquidity give the Acid Test Ratio (aka quick ratio) = Total current
assets - inventories/current liabilities
(higher number is better)
Under other measures of liquidity give the Solvency Ratio = Net worth / total assets
(the lower the number the better)
What are the Activity Ratios for? Measure of how effectively a company manages its assets
What is the Receivables turnover ratio (RT) and what does it tell us? RT = Revenues /
Receivables (avg) and it tells us the average collection period, which equals the number of days
in the period / the RT ratio
