D076 Finance Skills for Managers WGU questions with
verified answers
5 Catagories of Financial ratios Ans✓✓✓-Liquidity, Activity, leverage, profitability,
market.
(Liquids and levers promote markets) mnemonic
Activity is also called efficiency
AA rating Ans✓✓✓-Lower rate of return than AAA rated bonds
Accounting Issues Ans✓✓✓-Different types of inventory systems lead to different
quick ratios - a potential deficit of ratio comparison
Accounting vs. Finance Ans✓✓✓-Accounting is backwards looking and finance is
forward
Activity Ratios Ans✓✓✓-A category of ratios that measure how well a company
uses its assets to generate sales or cash, showing the firms operational efficiency
and profitability.
Example: AR ( accts receivable) turnover: credit sales over accounts receivable.
If number is 12 that means we collect once per month.
, Activity Ratios Ans✓✓✓-measure the effectiveness of the use of resources from
an operational point of view. Analyze inventories, fixed assets, accounts
receivable
Agency Problem Ans✓✓✓-the possibility of conflict of interest between the
owners and management of a firm
Resolved by aligning interests, example giving shares to manangement
annuity due Ans✓✓✓-an annuity whose payments occur at the beginning of each
period, consecutively
Average Collection Period (ACP) Ans✓✓✓-the average length of time required to
convert the firm's receivables into cash, that is, to collect cash following a sale.
Uses the accounts receivable turnover number (7) as denominator.
365/7 = so 52 days to collect receivables.
Benefits of compounding interest Ans✓✓✓-Allows lender to gain interest on
interest. Detriment because it causes borrower to pay same
Beta Ans✓✓✓-A measure of the volatility, or systematic risk, of a security or a
portfolio in comparison to the market as a whole.
Capital Asset Pricing Model (CAPM) Ans✓✓✓-Model used to determine risk-
return relationship for an asset
verified answers
5 Catagories of Financial ratios Ans✓✓✓-Liquidity, Activity, leverage, profitability,
market.
(Liquids and levers promote markets) mnemonic
Activity is also called efficiency
AA rating Ans✓✓✓-Lower rate of return than AAA rated bonds
Accounting Issues Ans✓✓✓-Different types of inventory systems lead to different
quick ratios - a potential deficit of ratio comparison
Accounting vs. Finance Ans✓✓✓-Accounting is backwards looking and finance is
forward
Activity Ratios Ans✓✓✓-A category of ratios that measure how well a company
uses its assets to generate sales or cash, showing the firms operational efficiency
and profitability.
Example: AR ( accts receivable) turnover: credit sales over accounts receivable.
If number is 12 that means we collect once per month.
, Activity Ratios Ans✓✓✓-measure the effectiveness of the use of resources from
an operational point of view. Analyze inventories, fixed assets, accounts
receivable
Agency Problem Ans✓✓✓-the possibility of conflict of interest between the
owners and management of a firm
Resolved by aligning interests, example giving shares to manangement
annuity due Ans✓✓✓-an annuity whose payments occur at the beginning of each
period, consecutively
Average Collection Period (ACP) Ans✓✓✓-the average length of time required to
convert the firm's receivables into cash, that is, to collect cash following a sale.
Uses the accounts receivable turnover number (7) as denominator.
365/7 = so 52 days to collect receivables.
Benefits of compounding interest Ans✓✓✓-Allows lender to gain interest on
interest. Detriment because it causes borrower to pay same
Beta Ans✓✓✓-A measure of the volatility, or systematic risk, of a security or a
portfolio in comparison to the market as a whole.
Capital Asset Pricing Model (CAPM) Ans✓✓✓-Model used to determine risk-
return relationship for an asset
