Foundations of Financial Management |
Chapter 4 & 5 Terms Questions And
Answers
pro forma income statement - (correct answer)✔️✔️-a projection of anticipated sales,
expenses and income
cash budget - (correct answer)✔️✔️-a series of monthly or quarterly budgets that indicate
cash receipts, cash payments, and the borrowing requirements for meeting financial
requirements. it is constructed from the pro forma income statement and other
supportive schedules
pro forma balance sheet - (correct answer)✔️✔️-a projection of future asset, liability and
stockholders' equity levels. notes payable or cash is used as a plug or balancing figures
for the statement
cost of goods sold - (correct answer)✔️✔️-the cost specifically associated with units sold
during the time period under study
percent-of-sales method - (correct answer)✔️✔️-a method of determining future financial
needs that is an alternative to the development of pro forma statements. we first
determine the percentage relationship of various asset and liability accounts to sales,
and then we show how that relationship changes as our volume of sales changes.
leverage - (correct answer)✔️✔️-the use of fixed-charge items with the intent of
magnifying the potential returns to the firm
operating leverage - (correct answer)✔️✔️-a reflection of the extent to which fixed asset
and fixed costs are utilized in the business firm
contribution margin - (correct answer)✔️✔️-the contribution to fixed costs from each unit
of sales. the margin may be computed as price minus variable cost per unit
degree of operating leverage - (correct answer)✔️✔️-a measure of the impact of fixed
costs on the operating earnings of the firm. the percentage change in operating income
is divided by the percentage change in volume at a given level of operation. other
algebraic statements are also used, such as Formula5-3 and that in footnote 2 in
chapter 5
financial leverage - (correct answer)✔️✔️-a measure of the amount of debt used in the
capital structure of the firm
Chapter 4 & 5 Terms Questions And
Answers
pro forma income statement - (correct answer)✔️✔️-a projection of anticipated sales,
expenses and income
cash budget - (correct answer)✔️✔️-a series of monthly or quarterly budgets that indicate
cash receipts, cash payments, and the borrowing requirements for meeting financial
requirements. it is constructed from the pro forma income statement and other
supportive schedules
pro forma balance sheet - (correct answer)✔️✔️-a projection of future asset, liability and
stockholders' equity levels. notes payable or cash is used as a plug or balancing figures
for the statement
cost of goods sold - (correct answer)✔️✔️-the cost specifically associated with units sold
during the time period under study
percent-of-sales method - (correct answer)✔️✔️-a method of determining future financial
needs that is an alternative to the development of pro forma statements. we first
determine the percentage relationship of various asset and liability accounts to sales,
and then we show how that relationship changes as our volume of sales changes.
leverage - (correct answer)✔️✔️-the use of fixed-charge items with the intent of
magnifying the potential returns to the firm
operating leverage - (correct answer)✔️✔️-a reflection of the extent to which fixed asset
and fixed costs are utilized in the business firm
contribution margin - (correct answer)✔️✔️-the contribution to fixed costs from each unit
of sales. the margin may be computed as price minus variable cost per unit
degree of operating leverage - (correct answer)✔️✔️-a measure of the impact of fixed
costs on the operating earnings of the firm. the percentage change in operating income
is divided by the percentage change in volume at a given level of operation. other
algebraic statements are also used, such as Formula5-3 and that in footnote 2 in
chapter 5
financial leverage - (correct answer)✔️✔️-a measure of the amount of debt used in the
capital structure of the firm
