FUNDAMENTALS OF INVESTING, FINANCIALS UPDATED 14TH EDITION COMPLETE EXAM QUESTIONS WITH CORRECT ANSWERS ||ALREADY GRADED

FUNDAMENTALS OF INVESTING, FINANCIALS UPDATED 14TH EDITION COMPLETE EXAM QUESTIONS WITH CORRECT ANSWERS ||ALREADY GRADED 1. Fixed assets turnover ratio - ANSWER The ratio of sales to net fixed assets 2. Return on invested capital (ROIC) - ANSWER The ratio of after-tax operating income to total invested capital; it measures the total return that the company has provided for its investors 3. Operating margin - ANSWER This ratio measures operating income, or EBIT, per dollar of sales; it is calculated by dividing operating income by sales 4. Liquid asset - ANSWER An asset that can be converted to cash quickly without having to reduce the asset's price very much 5. Days sales outstanding (DSO) ratio - ANSWER This ratio is calculated by dividing accounts receivable by average sales per day It indicates the average length of time the firm must wait after making a sale before it receives cash 6. "Window dressing" techniques - ANSWER Techniques employed by firms to make their financial statements look better than they really are 7. Liquidity ratios - ANSWER Ratios that show the relationship of a firm's cash and other current assets to its current liabilities 8. Dupont equation - ANSWER A formula that shows that the rate of return on equity can be found as the product of profit margin, total assets turnover, and the equity multiplier It shows the relationships among asset management, debt management, and profitability ratios 9. Carry-back - ANSWER Ordinary corporate operating losses can be carried backward for 2 years and carried forward for 20 years to offset taxable income in a given year 10. Economic value added (EVA) - ANSWER Excess of NOPAT over capital costs 11. Capital gain - ANSWER The profit (loss) from the sale of a capital asset for more (less) than its purchase price 12. Free cash flow (FCF) - ANSWER The amount of cash that could be withdrawn without harming a firm's ability to operate and to produce future cash flows 13. Average tax rate - ANSWER Taxes paid divided by taxable income 14. Balance sheet - ANSWER A statement of a firm's financial position at a specific point in time 15. Amortization - ANSWER A noncash charge similar to depreciation except that it represents a decline in value of intangible assets 16. Net operating working capital (NOWC) - ANSWER Current assets minus non-interest bearing current liabilities 17. Operating income - ANSWER Earnings from operations before interest and taxes (ie, EBIT) 18. Retained earnings - ANSWER They represent the cumulative total of all earnings kept by the company during its life 19. Net working capital - ANSWER Current assets minus current liabilities 20. Statement of stockholders' equity - ANSWER A statement that shows by how much a firm's equity changed during the year and why this change occurred 21. Working capital - ANSWER Current assets 22. Annual report - ANSWER A report issued annually by a corporation to its stockholders It contains basic financial statements as well as management's analysis of the firm's past operations and future prospects 23. Statement of cash flows - ANSWER A report that shows how items that affect the balance sheet and income statement affect the firm's cash flows 24. Alternative minimum tax (amt) - ANSWER Created by Congress to make it more difficult for wealthy individuals to avoid paying taxes through the use of various deductions 25. Progressive - ANSWER A tax system where the tax rate is higher on higher incomes The personal income tax in the United States, which ranges from 0% on the lowest incomes to 396% on the highest incomes, is progressive 26. S corporations - ANSWER A small corporation that, under Subchapter S of the Internal Revenue Code, elects to be taxed as a proprietorship or a partnership yet retains limited liability and other benefits of the corporate form of organization 27. Capital loss - ANSWER The profit (loss) from the sale of a capital asset for more (less) than its purchase price 28. Stockholders' equity - ANSWER It represents the amount that stockholders paid the company when shares were purchased and the amount of earnings the company has retained since its origination 29. Marginal tax rate - ANSWER The tax rate applicable to the last unit of a person's income 30. NOPAT, or net operating profit after taxes - ANSWER The profit a company would generate if it had no debt and held only operating assets 31. Ebitda - ANSWER Earnings before interest, taxes, depreciation, and amortization 32. Carry-forward - ANSWER Ordinary corporate operating losses can be carried backward for 2 years and carried forward for 20 years to offset taxable income in a given year 33. Income statements - ANSWER A report summarizing a firm's revenues, expenses, and profits during a reporting period, generally a quarter or a year 34. Depreciation - ANSWER The charge to reflect the cost of assets depleted in the production process Depreciation is not a cash outlay 35. MVA, or market value added - ANSWER The excess of the market value of equity over its book value 36. Intrinsic value - ANSWER An estimate of a stock's "true" value based on accurate risk and return data The intrinsic value can be estimated, but not measured precisely 37. Equity capital - ANSWER stocks are often referred to as equity securities or _____ because of the ownership position 38. Publicly traded issues - ANSWER shares that are readily available to the general public and are bought/sold in the open market 39. Public offering - ANSWER most widely used procedure when issuing new stock. Corporations offer the investing public a certain number of shares of its stock at a certain price 40. Rights offering - ANSWER existing shareholders are given the first opportunity to buy the new issue 41. Stock spin off - ANSWER when a company gets rid of one of its subsidiaries or divisions then creates a new stand-alone company and then distributes stock in that company to its existing shareholders 42. Stock split - ANSWER increase the number of shares outstanding by exchanging a specified number of shares for each outstanding share. Enhances the stock trading appeal by decreasing market price 43. Treasury stock - ANSWER when firms repurchase their own stock when they view it as undervalued on the market. Issued and then repurchased by issuing firm. "buybacks" 44. Classified common stock - ANSWER when a company issues different classes of common stock-- each of which entitles holders to different privileges and benefits. 45. Par value - ANSWER arbitrary amount assigned to stock when it is first issued. Represents a minimum value below which the corporate charter does not allow a company to sell shares 46. Book value - ANSWER the shareholders equity in the firm as reported on the BS. The amount of capital that shareholders contributed to the firm when it initially sold shares as well as any profits that has been reinvested in the company over time 47. Market value - ANSWER the prevailing market price. What investors are really willing to pay 48. Investment value - ANSWER indicates the worth investors place on the stock-- what they think the stock should be trading for. (most important measure for a stockholder) 49. Earnings per share - ANSWER translates aggregate corporate profits into profit per share. Provides a convenient measure of the amount of earnings available to stockholders 50. Date of record - ANSWER date on which the investor must be a registered shareholder of the firm to be entitled to a dividend. "holders of record" 51. Payment date - ANSWER generally follows the date of record by a week or two. The actual date on which the company mails dividends. 52. Ex-dividend date - ANSWER dictates whether you were an official shareholder and therefore eligible to receive the declared dividend