WGU C214 Financial Management OA Study Set

Trading on the NYSE is executed without a specialist (i.e. a market maker). True or False? - correct answerFalse Stocks and Bonds are two types of financial instruments. True or False? - correct answerTrue When revenue is matched with cost of sales in an Income statement it is called? - correct answerMatching principle Basic balance sheet equation is what? - correct answerEquity = Assets - Liabilities Why is the balance sheet known as the permanent statement? - correct answerBecause the other statements are reset at the end of the fiscal year. How do you calculate the change in retained earnings? - correct answerNet income-dividends Sales - Cost of Sales - other expenses = - correct answerOperating Income or EBiT Name four accounts that are part of total assets? - correct answerCash, Accounts receivable, inventory, long term assets Name three accounts that are part of total liabilities? - correct answerBonds, accounts payable and mortgage Name four accounts that are part of current assets? - correct answerInventory, cash, accounts receivable and short term investments. Name three accounts that are only included in cash flow from financing? - correct answerCommon stock, dividends paid and bonds payable Define the statement of cash flows? - correct answerCalculated for the same period of time as the incomes statement is calculated based on the income statement and changes in the balance sheet is one of the three basic accounting statements. When fixed assets increase what happens to cash? - correct answerCash will decrease What is the purpose of the statement of cash flows? - correct answerExplains the change in cash over the course of the specified time frame. Suppose the inventory turnover of a company is higher than the industry. Based on this observation, which of the following is most likely? - correct answerThe firm has too little inventory resulting in lost sales or stock-outs. If a company wishes to obtain a bank loan, will it want to have a higher current ratio or a lower current ratio? - correct answerHigher The Operating Income Return on Investment (OIROI) uses what elements on the income statement? - correct answerEBIT and total assets Why would a company be interested in the Total Asset Turnover (TAT) ratio? - correct answerTo see how efficient are at producing sales What annual interest will be paid for a zero coupon bond? - correct answer0% What is the most significant characteristic of subordinated debt? - correct answerSenior debt is paid off first If a company wants to increase its debt capital, how will they raise the funds? - correct answerSell bonds What is the lowest level investment bond - correct answerBBB What can cause the bond price to fluctuate? - correct answerA change in the bond rating, a change in the financial condition, general change in interest rates. What does a company use as security for a bond? - correct answerCredit worthiness Under the efficient market hypothesis, what will companies endeavor to do? - correct answerMaximize profits for a given level of risk What does the beta coefficient represent? - correct answerIt is a statistically derived measure of volatility. If an investor knows the idiosyncratic risk, the investor knows the? - correct answerBeta Coefficient Why is the depreciation expense taken out of the net income calculation, yet added back at the end? - correct answerBecause depreciation expense is tax deductible. Why would we reject a project based on NPV? - correct answerThe NPV is a negative number Why would we reject a project based on IRR? - correct answerThe discount rate is higher than the IRR What are two key elements of differential cash flow? - correct answerDepreciation expense and net income Why is the NPV preferred over the IRR? - correct answerIt measures the dollar value and is more reliable. When a company uses more leverage as evidenced by a higher degree of either financial or operating leverage, what effect does it have on changes in profitability? - correct answerHigher leverage leads to higher profitability for a given sale level. What does the degree of financial leverage indicate? - correct answerThe reliance on debt If a company has a high degree of financial leverage, what does that tell us about the firms risk profile? - correct answerFinancial leverage also means that more financing is done through debt, not equity. Higher profits to shareholders. What is the cash cycle? - correct answerThe amount of time to regenerate cash. Why is float important to understand? - correct answerTo time cash expenditures What should a company do to manage its working capital? - correct answerCollect quickly and pay slowly Name what characterizes increased collection float? - correct answerIncreased float indicates slower processing time. In regards to Accounts Payable Balances, what is a good policy? - correct answerPaying off A/P on the last day due is a good policy. What would be a good source of information to determine replacement cost? - correct answerBuilding Appraisal Dodd-Frank Act regulates which segment of the U.S economy? - correct answerBanking industry What is the regulatory body that overseas the systematic risk in banking? - correct answerFinancial stability oversight council The SEC securities and Exchange Commission requires companies to do the following three things: - correct answerRegister all public offerings, regulate stock sales and ensure transparency through uniform reporting. What does the Sarbanes-Oxley Act require companies to do? - correct answerHave internal control audits, senior management responsible for signing off on statements and places restrictions on auditors. Financial Industry Regulatory Authority (FINRA) does the following? - correct answerLicenses stock brokers and audits brokerage firms. If a product is made 100% domestically, what can affect its domestic market? - correct answerInternational competition