FINANCIAL MANAGEMENT EXAM 1
COMPREHENSIVE STUDY QUESTIONS AND
ANSWERS
◉ identify and describe types of financial management decisions.
Answer: - capital budgeting = planning and managing LT
investments
- capital structure = mixture of debt to equity %
- working capital management = ST assets and L
◉ sole proprietorship.
Answer: least regulated, unlimited liability, advantage is tax
treatment
◉ partnership.
Answer: 2+ people, can be general partnerships or limited
partnerships, easy and inexpensive to form, unlimited liability for
business debts on part of the owners, limited life of business,
difficulty of transferring ownership
◉ corporation.
,Answer: separate legal entity, separate taxable entity, bylaws, double
taxation (corporate and personal level)
◉ goals of financial management in a corporation.
Answer: maximize profits
◉ Sarbanes-Oxley Act.
Answer: 2002, oversees and regulates accounting fraud in financial
statements
◉ issues with agency relationship.
Answer: conflicts of interest between owners and management
◉ define stakeholder.
Answer: not a stockholder or creditor, has a claim on cash flows of a
firm
◉ distinguish between primary and secondary markets.
Answer: primary = corporation is the seller
secondary = one owner/creditor selling to another
◉ 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
COMPREHENSIVE STUDY QUESTIONS AND
ANSWERS
◉ identify and describe types of financial management decisions.
Answer: - capital budgeting = planning and managing LT
investments
- capital structure = mixture of debt to equity %
- working capital management = ST assets and L
◉ sole proprietorship.
Answer: least regulated, unlimited liability, advantage is tax
treatment
◉ partnership.
Answer: 2+ people, can be general partnerships or limited
partnerships, easy and inexpensive to form, unlimited liability for
business debts on part of the owners, limited life of business,
difficulty of transferring ownership
◉ corporation.
,Answer: separate legal entity, separate taxable entity, bylaws, double
taxation (corporate and personal level)
◉ goals of financial management in a corporation.
Answer: maximize profits
◉ Sarbanes-Oxley Act.
Answer: 2002, oversees and regulates accounting fraud in financial
statements
◉ issues with agency relationship.
Answer: conflicts of interest between owners and management
◉ define stakeholder.
Answer: not a stockholder or creditor, has a claim on cash flows of a
firm
◉ distinguish between primary and secondary markets.
Answer: primary = corporation is the seller
secondary = one owner/creditor selling to another
◉ 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
