Financial Management Exam 1 (Chapters
1-6) Answered Correctly!! | 2025 Verified
four basic areas of finance CORRECT ANSWERS 1. corporate finance
2. investments
3. financial institutions
4. international finance
identify and describe types of financial management decisions CORRECT ANSWERS -
capital budgeting = planning and managing LT investments
- capital structure = mixture of debt to equity %
- working capital management = ST assets and L
sole proprietorship CORRECT ANSWERS least regulated, unlimited liability, advantage
is tax treatment
partnership CORRECT ANSWERS 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 CORRECT ANSWERS separate legal entity, separate taxable entity,
bylaws, double taxation (corporate and personal level)
goals of financial management in a corporation CORRECT ANSWERS maximize profits
Sarbanes-Oxley Act CORRECT ANSWERS 2002, oversees and regulates accounting
fraud in financial statements
issues with agency relationship CORRECT ANSWERS conflicts of interest between
owners and management
define stakeholder CORRECT ANSWERS not a stockholder or creditor, has a claim on
cash flows of a firm
distinguish between primary and secondary markets CORRECT ANSWERS primary =
corporation is the seller
secondary = one owner/creditor selling to another
balance sheet: purpose and description CORRECT ANSWERS financial position of
company at certain point of time
balance sheet equation CORRECT ANSWERS A = L + OE
liquidity CORRECT ANSWERS speed and ease of assets turning into cash
, define and calculate working capital CORRECT ANSWERS CA - CL
usually positive in a healthy firm
what is meant by financial leverage CORRECT ANSWERS use of debt to finance
operations and investments
market value versus book value CORRECT ANSWERS market is current worth, book is
historical cost
income statement: purpose, GAAP, limitations CORRECT ANSWERS firm's
performance over period, results of operations, GAAP, time and costs
income statement equation CORRECT ANSWERS revenue - expense = income
why accounting income is not the same as cash flows CORRECT ANSWERS under
GAAP accrual basis, revenue is recognized at the time of sale, not necessarily at the
time of collection... not always reflective of actual inflows and outflows during the
particular period
calculate net income CORRECT ANSWERS Revenue - expences
determine the change in retained earnings CORRECT ANSWERS
what is meant by earnings management? CORRECT ANSWERS controversial practice
where corporation smooths out earnings growth, manipulate numbers
distinguish between and determine average and marginal tax rates CORRECT
ANSWERS average = total taxes / total taxable income
marginal is tax on next dollar earned
cash flow identity CORRECT ANSWERS CFFA = CF to creditors + CF to stockholders
A = L + OE
CFFA CORRECT ANSWERS operating cash flow, capital spending, change in net
working capital
common-size balance sheet CORRECT ANSWERS % of total assets
common-size income statement CORRECT ANSWERS % of total sales
purpose of common-size financial statements CORRECT ANSWERS to compare
companies of different sizes, establish relationships between accounts
short term solvency, liquidity, measures - provide info about a firm's liquidity CORRECT
ANSWERS current ratio
1-6) Answered Correctly!! | 2025 Verified
four basic areas of finance CORRECT ANSWERS 1. corporate finance
2. investments
3. financial institutions
4. international finance
identify and describe types of financial management decisions CORRECT ANSWERS -
capital budgeting = planning and managing LT investments
- capital structure = mixture of debt to equity %
- working capital management = ST assets and L
sole proprietorship CORRECT ANSWERS least regulated, unlimited liability, advantage
is tax treatment
partnership CORRECT ANSWERS 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 CORRECT ANSWERS separate legal entity, separate taxable entity,
bylaws, double taxation (corporate and personal level)
goals of financial management in a corporation CORRECT ANSWERS maximize profits
Sarbanes-Oxley Act CORRECT ANSWERS 2002, oversees and regulates accounting
fraud in financial statements
issues with agency relationship CORRECT ANSWERS conflicts of interest between
owners and management
define stakeholder CORRECT ANSWERS not a stockholder or creditor, has a claim on
cash flows of a firm
distinguish between primary and secondary markets CORRECT ANSWERS primary =
corporation is the seller
secondary = one owner/creditor selling to another
balance sheet: purpose and description CORRECT ANSWERS financial position of
company at certain point of time
balance sheet equation CORRECT ANSWERS A = L + OE
liquidity CORRECT ANSWERS speed and ease of assets turning into cash
, define and calculate working capital CORRECT ANSWERS CA - CL
usually positive in a healthy firm
what is meant by financial leverage CORRECT ANSWERS use of debt to finance
operations and investments
market value versus book value CORRECT ANSWERS market is current worth, book is
historical cost
income statement: purpose, GAAP, limitations CORRECT ANSWERS firm's
performance over period, results of operations, GAAP, time and costs
income statement equation CORRECT ANSWERS revenue - expense = income
why accounting income is not the same as cash flows CORRECT ANSWERS under
GAAP accrual basis, revenue is recognized at the time of sale, not necessarily at the
time of collection... not always reflective of actual inflows and outflows during the
particular period
calculate net income CORRECT ANSWERS Revenue - expences
determine the change in retained earnings CORRECT ANSWERS
what is meant by earnings management? CORRECT ANSWERS controversial practice
where corporation smooths out earnings growth, manipulate numbers
distinguish between and determine average and marginal tax rates CORRECT
ANSWERS average = total taxes / total taxable income
marginal is tax on next dollar earned
cash flow identity CORRECT ANSWERS CFFA = CF to creditors + CF to stockholders
A = L + OE
CFFA CORRECT ANSWERS operating cash flow, capital spending, change in net
working capital
common-size balance sheet CORRECT ANSWERS % of total assets
common-size income statement CORRECT ANSWERS % of total sales
purpose of common-size financial statements CORRECT ANSWERS to compare
companies of different sizes, establish relationships between accounts
short term solvency, liquidity, measures - provide info about a firm's liquidity CORRECT
ANSWERS current ratio
