FACHE Board of Governor’s Exam Questions and Answers Latest Update 2024 (Graded A+)

FACHE Board of Governor’s Exam Questions and Answers Latest Update 2024 (Graded A+) Definition of working capital Amount of cash required to support operations - for the period of delay in collecting revenue. 5 Financial Mgt functions that are essential for survival 1) Financial planning 2) Pricing 3) Mgt of long term capital 4) Mgt of short term assets & liabilities 5) Multiple corporate acct Relation of Finance to the Governing Board The finance system relates directly to the gov'n board through the finance committee, and the CFO often represents the Sr. Mgt team on the committee. What 4 budgets comprise a financial budget? 1) Income & expense budget 2) Budgeted financial statements 3) Cash flow budget 4) Capital & new program budget Definition of Financial Budget Expectation of future financial performance What does Activity-Based Costing (ABC) promote? Control of services, the use of make or buy (in-source or out-source) decisions, and improvement of processes that cross several accountability centers. Definition of Capital (capital goods) Human-made resources (machinery & equipment) used to produce goods & services that do not directly satisfy human wants. General Definition of Capital Expenditure Purchases of Land, Buildings, & Equipment for operations, are not for resale, and have a useful life of >1yr, cost of $500 or more, and are subject to depreciation. 6 General Conditions required to be a Capital Expenditure 1) Expenditure of Land, Buildings, & Equipment (Capital Goods) 2) Used for operations, 3) are not for resale, 4) have a useful life of >1yr, 5) cost of $500 or more, 6) are subject to depreciation. What is Section 501(c)(3)? FACHE - HC Finance Exam Questions and Answers Latest Update Graded 100% Section of the IRS Code that makes a HCO tax-exempt 00:0201:38 What are 2 Ratios that measure the ability to pay current liabilities? 1) Current Ratio 2) Acid Test (aka Quick) Ratio What are 3 Ratios used to measure ability to sell inventory and collect receivables? 1) Inventory Turnover ratio 2) A/R Turnover ratio 3) Day's Sales in Receivables ratio What are 2 Ratios used to measure ability to pay long-term debt? 1) Debt Ratio 2) Time-Interest-Earned Ratio What are 4 Ratios used to measure Profitability? 1) Rate of Return on Net Sales ratio 2) Rate of Return on Total Assets ratio 3) Rate of Return on Common Stockholder's Equity ratio 4) Earnings Per Share of Common Stock ratio What are 3 Ratios to analyze Stock as an investment? 1) Price-Earning's ratio 2) Divident Yield ratio 3) Book value per share of common stock What is the Current Ratio Formula? = (Current Assets) / (Current Liabilities) > Measures ability to pay current liabilities from current assets > The higher the ratio, the better; (want numerator to be larger than the denominator, indicates stronger financial position) What is the Acid Test (aka Quick) Ratio Formula? = (Cash+Short-term investments+Net current receivables) / Current Liabilities > Shows ability to pay current liabilities from the most liquid assets > Tells whether the organization can pay all its current liabilities if they come due asap > In other words, how quickly can a HCO convert its most liquid assets to cash to pay current liabilities > The higher the better; indicates enough (if not more) current assets to cover current liabilities What is the Inventory Turnover Formula? = (Cost of Good Sold) / Avg Inventory (at cost) for the Period > Indicates saleability of inventory > Measures the # of times a company sells its avg level of inventory in a given period. > The higher the ratio, the better; means relative ease in selling inventory (want the numerator to be larger than the denominator) What is the A/R Turnover ratio formula? = (Net Credit Sales) / Avg Net A-R > Measures collectibility of receivables; ability to collect cash from credit customers What is the Day's Sales in Receivables ratio Formula? = (Avg Net A-R) / (One day's sales) > Shows how many days it takes to collect avg receivables What is the Debt Ratio Formula? = (Total Liabilities) / (Total Assets) > Indicates % of assets financed through borrowing What is the Time-Interest-Earned Ratio Formula? = (Income from Operations) / (Interest Expense) > Measures coverage of interest expense by operating income What is the Rate of Return on Net Sales ratio Formula? = (Net Income) / (Net Sales) > Shows % of each sales dollar earned as net income What is the Rate of Return on Total Assets ratio Formula? = (Net Income+Interest Expense) / (Avg Total Assets) > Gauges how profitably assets are used > Net Income (for Investors) & Interest Expense (for HCO's Creditors) are the two Return-on-Assets measures. What is the Rate of Return on Common Stockholder's Equity ratio Formula? = (Net Income - Preferred dividends) / (Avg Common Stockholder's Equity) > Gauges how profitably the assets financed by the common stockholders are used. What is the Earnings Per Share of Common Stock ratio Formula? = (Net Income - Preferred Dividends) / (# of shares of common stock outstanding) > Gives the amt of earnings per one share of common stock. What is the Price-Earning's ratio Formula? = (Mkt price per share of common stock) / Earnings per share > Indicates the mkt price of $1 of earnings What is the Operating Cycle of a Merchandiser? Cash --> Inventory --> Receivables --> Cash