BMAL 590 Business Finance
Why is the quick ratio a more appropriate measure of liquidity than the current ratio for a
large-airplane manufacturer? - CORRECT ANSWER-It excludes inventory from the
numerator of the ratio because it is difficult to convert inventory to cash and most sales
are made on a credit basis
The one fixed asset that is not depreciated is _________ - CORRECT ANSWER-Land
Return on total assets (ROA) is equal to _________ - CORRECT ANSWER-All of the
above
When a firm has no "other income," its operating profit and _________ are equal -
CORRECT ANSWER-EBIT
The firm's ________ are primarily interested in ratios that measure the short-term
liquidity of the company and its ability to make principal and interest payments -
CORRECT ANSWER-Creditors
When evaluating financial ratios, analysts typically examine a firm's ratio values -
CORRECT ANSWER-Compared to the firm's previous years' ratio
_________ ratios would provide the best information regarding total return to common
stockholders - CORRECT ANSWER-Profitability
A company's balance sheet shows the value of assets, liabilities, and stockholders'
equity - CORRECT ANSWER-At a specific point in time
On a balance sheet, retained earnings are not "unspent cash" because - CORRECT
ANSWER-They have been used to finance the firm's assets
For both managers and external financial analysts, ________ is the single most
important accounting number found on the income statement - CORRECT ANSWER-
Net income (net profit after tax)
Earnings per share (EPS) is calculated by - CORRECT ANSWER-Dividing earnings
available for common stockholders by the number of shares of common stock
outstanding
Net working capital - CORRECT ANSWER-Is a measure of a firm's overall liquidity
The firm's managers use ratios to _________ - CORRECT ANSWER-All of the above
, The ________ flows result from debt and equity financing transactions - CORRECT
ANSWER-Financing
Which of the following is an inflow of corporate cash? - CORRECT ANSWER-
Depreciation charges
The bottom-up method for forecasting sales - CORRECT ANSWER-Relies on the ability
of sales personnel to assess future demand, usually without the aid of statistical models
Following ________ financing strategy takes advantage of short-term interest rates but
also increases refinancing risk. Following ________ financing strategy minimizes the
risk of a liquidity crisis, but generally increases borrowing costs. Following ________
financing strategy results in the use of long-term funding for permanent assets and
short-term financing for temporary or seasonal requirements - CORRECT ANSWER-
None of the above
The sustainable growth model gives managers a kind of shorthand projection that ties
together ________ and ________ - CORRECT ANSWER-Growth objectives and
financial needs
The key input required to build a cash budget is - CORRECT ANSWER-The firm's sales
forecast
Which of the following are common cash disbursements? - CORRECT ANSWER-All of
the above
Most pro forma statements begin with a sales forecast. One approach to deriving a
sales forecast is the top-down approach. Top-down sales forecasts rely heavily on -
CORRECT ANSWER-Macroeconomic and industry forecasts
A firm that employs an aggressive strategy to finance assets - CORRECT ANSWER-
Will finance a portion of long-term (permanent) growth in assets with short-term
financing
A strategic plan is a - CORRECT ANSWER-Long-term guide driven by competitive
forces
A cash budget is - CORRECT ANSWER-A statement of a firm's planned inflows and
outflows of cash used to ensure that a firm has available cash to meet short-term
financial obligations
A speedup in ________ should ________ a firm's financing needs; whereas, a slow
down in ________ should ________ financing needs for a firm - CORRECT ANSWER-
Payments; increase; collections; increase
Why is the quick ratio a more appropriate measure of liquidity than the current ratio for a
large-airplane manufacturer? - CORRECT ANSWER-It excludes inventory from the
numerator of the ratio because it is difficult to convert inventory to cash and most sales
are made on a credit basis
The one fixed asset that is not depreciated is _________ - CORRECT ANSWER-Land
Return on total assets (ROA) is equal to _________ - CORRECT ANSWER-All of the
above
When a firm has no "other income," its operating profit and _________ are equal -
CORRECT ANSWER-EBIT
The firm's ________ are primarily interested in ratios that measure the short-term
liquidity of the company and its ability to make principal and interest payments -
CORRECT ANSWER-Creditors
When evaluating financial ratios, analysts typically examine a firm's ratio values -
CORRECT ANSWER-Compared to the firm's previous years' ratio
_________ ratios would provide the best information regarding total return to common
stockholders - CORRECT ANSWER-Profitability
A company's balance sheet shows the value of assets, liabilities, and stockholders'
equity - CORRECT ANSWER-At a specific point in time
On a balance sheet, retained earnings are not "unspent cash" because - CORRECT
ANSWER-They have been used to finance the firm's assets
For both managers and external financial analysts, ________ is the single most
important accounting number found on the income statement - CORRECT ANSWER-
Net income (net profit after tax)
Earnings per share (EPS) is calculated by - CORRECT ANSWER-Dividing earnings
available for common stockholders by the number of shares of common stock
outstanding
Net working capital - CORRECT ANSWER-Is a measure of a firm's overall liquidity
The firm's managers use ratios to _________ - CORRECT ANSWER-All of the above
, The ________ flows result from debt and equity financing transactions - CORRECT
ANSWER-Financing
Which of the following is an inflow of corporate cash? - CORRECT ANSWER-
Depreciation charges
The bottom-up method for forecasting sales - CORRECT ANSWER-Relies on the ability
of sales personnel to assess future demand, usually without the aid of statistical models
Following ________ financing strategy takes advantage of short-term interest rates but
also increases refinancing risk. Following ________ financing strategy minimizes the
risk of a liquidity crisis, but generally increases borrowing costs. Following ________
financing strategy results in the use of long-term funding for permanent assets and
short-term financing for temporary or seasonal requirements - CORRECT ANSWER-
None of the above
The sustainable growth model gives managers a kind of shorthand projection that ties
together ________ and ________ - CORRECT ANSWER-Growth objectives and
financial needs
The key input required to build a cash budget is - CORRECT ANSWER-The firm's sales
forecast
Which of the following are common cash disbursements? - CORRECT ANSWER-All of
the above
Most pro forma statements begin with a sales forecast. One approach to deriving a
sales forecast is the top-down approach. Top-down sales forecasts rely heavily on -
CORRECT ANSWER-Macroeconomic and industry forecasts
A firm that employs an aggressive strategy to finance assets - CORRECT ANSWER-
Will finance a portion of long-term (permanent) growth in assets with short-term
financing
A strategic plan is a - CORRECT ANSWER-Long-term guide driven by competitive
forces
A cash budget is - CORRECT ANSWER-A statement of a firm's planned inflows and
outflows of cash used to ensure that a firm has available cash to meet short-term
financial obligations
A speedup in ________ should ________ a firm's financing needs; whereas, a slow
down in ________ should ________ financing needs for a firm - CORRECT ANSWER-
Payments; increase; collections; increase
