Business 101 - Midterm 2| Questions with Complete Solutions 100% Solved| Grade A+
Equity Financing funds provided by the owners of a company (This can dilute the ownership
of previous stockholders and can be a negative!)
Primary markets Firm sells new issues of security (stock or bonds) publicly for the first time
to investment bankers (underwriters)
Secondary Markets Subsequent owners trade previously issued shares of stock and bonds
(ex. NYSE, AMEX, London, Jakarta)
Owners rights of a stock -you give the company money
-you now own a piece of the company
-you benefit when stock goes up
-you benefit when the company issues dividend
Book Value Owners equity/number of shares
Earnings per share Net income/number of shares
Dividend Cash payment to owners from profits
Yield Dividend/Price
What is current ratio? Current Assets / Current Liabilities = Current Ratio
Quick/Acid ratio (Current Assets - Inventories) / Current Liabilities = Quick/Acid ratio
, Leverage ratios evaluate a firms debt
Debt to Equity Ratio Total Debt/Total Owner's Equity (- Measures debt vs. equity owned in
an asset
- Compares amount you owe to the amount you own
- Ability of shareholder equity to cover all outstanding debts
- The lower the ratio, the less you owe)
What does a high debt/equity ratio indicate? A firm has been aggressive in financing growth
with debt
Risky Debt/equity ratio Debt/equity ratio > 2.0 = risky
Money Anything people generally accept as payment for goods and services
Barter The direct trading of goods and services for other goods and services
Weak - Falling Dollar Value Amount of goods/services you can buy with $1 (DECREASES)
Strong - Rising Dollar Value Amount of goods/services you can buy with $1 (INCREASES)
Global Exchange of Money (Dollar) Dollar rises or falls due to the position of the US
economy relative to other global economies
Impact of Falling Dollar - US tourism increases: Good for hotels, resorts, theme parks,
retailers
Equity Financing funds provided by the owners of a company (This can dilute the ownership
of previous stockholders and can be a negative!)
Primary markets Firm sells new issues of security (stock or bonds) publicly for the first time
to investment bankers (underwriters)
Secondary Markets Subsequent owners trade previously issued shares of stock and bonds
(ex. NYSE, AMEX, London, Jakarta)
Owners rights of a stock -you give the company money
-you now own a piece of the company
-you benefit when stock goes up
-you benefit when the company issues dividend
Book Value Owners equity/number of shares
Earnings per share Net income/number of shares
Dividend Cash payment to owners from profits
Yield Dividend/Price
What is current ratio? Current Assets / Current Liabilities = Current Ratio
Quick/Acid ratio (Current Assets - Inventories) / Current Liabilities = Quick/Acid ratio
, Leverage ratios evaluate a firms debt
Debt to Equity Ratio Total Debt/Total Owner's Equity (- Measures debt vs. equity owned in
an asset
- Compares amount you owe to the amount you own
- Ability of shareholder equity to cover all outstanding debts
- The lower the ratio, the less you owe)
What does a high debt/equity ratio indicate? A firm has been aggressive in financing growth
with debt
Risky Debt/equity ratio Debt/equity ratio > 2.0 = risky
Money Anything people generally accept as payment for goods and services
Barter The direct trading of goods and services for other goods and services
Weak - Falling Dollar Value Amount of goods/services you can buy with $1 (DECREASES)
Strong - Rising Dollar Value Amount of goods/services you can buy with $1 (INCREASES)
Global Exchange of Money (Dollar) Dollar rises or falls due to the position of the US
economy relative to other global economies
Impact of Falling Dollar - US tourism increases: Good for hotels, resorts, theme parks,
retailers
