Finance Skills for Managers Exam Questions and Correct Answers Already Passed
Accounting - Answers The system of recording, reporting, and summarizing past financial information
and transactions
Accounts Receivable Turnover (AR Turnover) - Answers An activity ratio found by credit sales divided by
accounts receivable.
Activity Ratios - Answers A category of ratios that measure how well a company uses its assets to
generate sales or cash, showing the firm's operational efficiency and profitability.
Affirmative Covenants - Answers A bond covenant that describes things the company pledges itself to do
in order to protect bondholders
Agency Costs - Answers Costs that are incurred when management does not act in the best interest of
shareholders.
Agency Problem - Answers When the agent (the management) does not act in the best interest of the
principal (the owners).
Aggressive Assets - Answers Companies or securities with beta greater than 1.
Annual Percentage Rate - Answers The annual interest rate that is charged for borrowing money or that
is earned through investment.
Annuity - Answers A stream of cash flows of an equal amount paid every consecutive period.
Annuity Due - Answers A series of equal payments made at the beginning of consecutive periods.
Asset Pricing - Answers The process of valuing assets.
Auction Market - Answers A secondary market with a physical location and where prices are determined
by investors' willingness to pay.
Average Collection Period (ACP) - Answers An activity ratio found by the number of days in a year (365)
divided by AR turnover.
Balance Sheet Forecasting - Answers Using sales growth and the profit forecast to construct a pro forma
balance sheet to understand the future implications of the sources and uses of finances.
Banks and Credit Unions - Answers Receive deposits and extend loans to individuals and businesses.
Benchmarking - Answers The process of completing a financial analysis to compare a firm's financial
performance to that of other similar firms.
Beta - Answers A variable that describes how the price of a security varies with the market.
, Bid-ask Spread - Answers The difference between the bid and ask prices that compensate the specialist
for the risk that he or she bears for willingness to provide liquidity.
Board of Directors - Answers A group of people who jointly supervise the activities of an organization.
Bond Indenture - Answers A legal contract that governs the relationship between a firm and its
bondholders.
Bondholders - Answers A person who loans a corporation money by buying debt securities.
Business Finance - Answers An area of finance that deals with sources of funding, the capital structure of
corporations, the actions that managers take to increase the value of the firm to its owners, and the
tools and analysis used to allocate financial resources
Cannibalization - Answers The reduction in sales of a company's own products due to introduction of
another similar product.
Capital - Answers A financial asset that can be used by a firm or individual. Examples of capital may be
machinery or cash held by a firm.
Capital Asset Pricing Model (CAPM) - Answers A model used to determine the risk-return relationship for
an asset.
Capital Budgeting - Answers The process of evaluation and planning for purchases of long-term assets.
Capital Budgeting Criteria - Answers Metrics and calculations used to determine whether a project or
asset will add value and be a worthwhile investment.
Capital Investment - Answers The sum of money invested in a business to purchase long-term assets to
further its objective of maximizing owner wealth.
Capital Markets - Answers A type of financial market used for long-term assets that are held for greater
than one year.
Capital Structure - Answers The mixture of debt and equity used to finance a firm.
Capital-constrained Environment - Answers When a limited amount of funds are available.
Cash Budgets - Answers A plan for controlling cash inflows and outflows business to balance income
with expenditures.
Cash Management - Answers Managing the day-to-day finance operations of a firm.
Central Banks - Answers Ensure that a nation's economy remains healthy by controlling the amount of
money circulating in the economy.
Common Stock - Answers A type of stock that represents equity in a firm and confers the right to vote at
shareholder meetings.
Accounting - Answers The system of recording, reporting, and summarizing past financial information
and transactions
Accounts Receivable Turnover (AR Turnover) - Answers An activity ratio found by credit sales divided by
accounts receivable.
Activity Ratios - Answers A category of ratios that measure how well a company uses its assets to
generate sales or cash, showing the firm's operational efficiency and profitability.
Affirmative Covenants - Answers A bond covenant that describes things the company pledges itself to do
in order to protect bondholders
Agency Costs - Answers Costs that are incurred when management does not act in the best interest of
shareholders.
Agency Problem - Answers When the agent (the management) does not act in the best interest of the
principal (the owners).
Aggressive Assets - Answers Companies or securities with beta greater than 1.
Annual Percentage Rate - Answers The annual interest rate that is charged for borrowing money or that
is earned through investment.
Annuity - Answers A stream of cash flows of an equal amount paid every consecutive period.
Annuity Due - Answers A series of equal payments made at the beginning of consecutive periods.
Asset Pricing - Answers The process of valuing assets.
Auction Market - Answers A secondary market with a physical location and where prices are determined
by investors' willingness to pay.
Average Collection Period (ACP) - Answers An activity ratio found by the number of days in a year (365)
divided by AR turnover.
Balance Sheet Forecasting - Answers Using sales growth and the profit forecast to construct a pro forma
balance sheet to understand the future implications of the sources and uses of finances.
Banks and Credit Unions - Answers Receive deposits and extend loans to individuals and businesses.
Benchmarking - Answers The process of completing a financial analysis to compare a firm's financial
performance to that of other similar firms.
Beta - Answers A variable that describes how the price of a security varies with the market.
, Bid-ask Spread - Answers The difference between the bid and ask prices that compensate the specialist
for the risk that he or she bears for willingness to provide liquidity.
Board of Directors - Answers A group of people who jointly supervise the activities of an organization.
Bond Indenture - Answers A legal contract that governs the relationship between a firm and its
bondholders.
Bondholders - Answers A person who loans a corporation money by buying debt securities.
Business Finance - Answers An area of finance that deals with sources of funding, the capital structure of
corporations, the actions that managers take to increase the value of the firm to its owners, and the
tools and analysis used to allocate financial resources
Cannibalization - Answers The reduction in sales of a company's own products due to introduction of
another similar product.
Capital - Answers A financial asset that can be used by a firm or individual. Examples of capital may be
machinery or cash held by a firm.
Capital Asset Pricing Model (CAPM) - Answers A model used to determine the risk-return relationship for
an asset.
Capital Budgeting - Answers The process of evaluation and planning for purchases of long-term assets.
Capital Budgeting Criteria - Answers Metrics and calculations used to determine whether a project or
asset will add value and be a worthwhile investment.
Capital Investment - Answers The sum of money invested in a business to purchase long-term assets to
further its objective of maximizing owner wealth.
Capital Markets - Answers A type of financial market used for long-term assets that are held for greater
than one year.
Capital Structure - Answers The mixture of debt and equity used to finance a firm.
Capital-constrained Environment - Answers When a limited amount of funds are available.
Cash Budgets - Answers A plan for controlling cash inflows and outflows business to balance income
with expenditures.
Cash Management - Answers Managing the day-to-day finance operations of a firm.
Central Banks - Answers Ensure that a nation's economy remains healthy by controlling the amount of
money circulating in the economy.
Common Stock - Answers A type of stock that represents equity in a firm and confers the right to vote at
shareholder meetings.
