WGU D076 (Finance Skills for Managers) Final Exam Questions With Answers Latest Update 2023/2024 | Graded A+ (VERIFIED)

Why are activity ratios also called efficiency ratios or asset use efficiency ratios? - Answer Because they measure how well a company uses its assets to generate sales or cash. What type of ratio is used to consider how a firm is financed and to assess a firm's ability to pay interest and pay back long-term obligations? - Answer Financing ratios (Correct! Financing ratios consider how a firm is financed.) What does a net margin of 7% indicate? - Answer For every dollar of revenue, 7 cents remain for the equity holders after all other costs are covered. (Correct! Net margin tells us the percentage of sales that will become net income, which is the amount remaining for the equity holders.) Firm A has an average collection period of 67 days, and the industry norm is 40 days. What can the firm do in order to be competitive with accounts receivable management in the industry? - Answer Tighten the credit standards for its customers. (Correct! The credit standards are too loose, so the customers are not paying Firm A as quickly as they are paying other competitors in the industry. Tightening the credit standards would shorten the average collection period.) What is the difference between the current ratio and the quick ratio? - Answer Inventory is excluded in the calculation of the quick ratio. (Correct! Since inventory is the least liquid current asset, inventory is not included in the calculation.) Which term is used to describe the stock of a firm with market-to-book ratio of less than 1? - Answer Value stock (Correct! An M/B ratio of less than 1 is considered a value stock.) What does inventory turnover assess? - Answer The inventory management of a firm (Correct! Inventory turnover tells us how well a firm is managing its inventory.) You are comparing the return on equity of Firm 1 and Firm 2. Both firms have an identical profit margin and asset turnover, but Firm 1 has an overall higher return on equity. What must be true? - Answer Firm 1 is using a higher proportion of debt to finance its operations. (Correct! The third component of return on equity is the leverage multiplier. Since the firms' profit margins and asset turnovers are the same, it must be the leverage multiplier that is different. Using a higher amount of debt would result in a larger leverage multiplier and an overall higher return on equity.) UNIT 5 Jerry wants to begin budgeting his money. What are three principles that he should know before beginning the budgeting process? - Answer Keep records; understand the key areas of savings, expenses, and income; and eliminate consumer debt. (Correct! These are three of the six principles of budgeting. The other three are know yourself; develop savings, income, and expense strategies; and use a method that meets your needs and objectives.) What are the three things one must determine before making a personal budget? - Answer Income, expenses, and savings (Correct! Knowing these things allows you to create a statement that accurately reflects your cash flows from month to month.) A firm had sales of $100,000 this month. However, the firm received only $90,000 in cash from sales. Why would the firm receive $10,000 less cash than its monthly sales? - Answer Because the firm did not make all sales on cash (Correct! Some sales are made on credit rather than cash, and a portion of credit sales are collected in the following months after the sales.) What three things should an individual or company be doing so that their budget is effective and so that they are on track to meet their financial goals? - Answer Track cash flows, monitor cash flows, and revise the budget (Correct! Doing these things helps you to use your money in the most efficient and effective way possible.) What is the envelope method of budgeting? - Answer Withdrawing cash at the beginning of the period and then allowing only a certain amount to be available for each category of spending (Correct! The envelope method involves putting a specific portion of your budget in cash in each envelope and only spending this amount during the period.) What are long-term financial forecasts used for? - Answer Making investment and financing decisions (Correct! Whatever growth a firm anticipates must eventually be financed one way or another. Any investment in capital that exceeds what the firm retains from profit generates a discretionary financing need.) Which type of account does not vary with sales and is left to management's discretion? - Answer Non-spontaneous accounts (Correct! Non-spontaneous, or discretionary, accounts do not vary automatically with sales but are left to the discretion of management.) Which account is a discretionary account? - Answer Notes payable (Correct! Notes payable does not vary with sales, and it is based on management discretion.) What is the rate at which a firm can grow without issuing new equity? - Answer Sustainable growth rate (Correct! The sustainable growth rate is the growth rate that allows a firm to maintain its present financial ratios without issuing new equity.) Why do fixed assets increase as a lump sum instead of in proportion to sales growth? - Answer A firm must purchase an entire fixed asset rather than just the portion needed to increase production. (Correct!. A factory or a piece of equipment must be purchased as a whole.) UNIT 6