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Finance 305 > Chapters 1-3 > Flashcards

Chapters 1-3 Flashcards

(56 cards)

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1
Q

Cash Ratio

A

(Cash + Marketable Securities) / Current Liabilities

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2
Q

Most conservative of the liquidity ratios

A

Cash Ratio

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3
Q

Inventory Ratio

A

Cost of Goods Sold / Ave Inventory

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4
Q

Average Collection Period

A

(Ave AR x 365) / Credit Sales

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5
Q

Measures the number of times per period a business sells and replaces its entire inventory

A

Inventory Ratio

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6
Q

Measures the average number of days a company takes to collect its receivables after the sale

A

Average Collection Period

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7
Q

Return on Equity

A

NI Available to Common Stockholders / Common Stockholders Equity

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8
Q

Measures the net income earned per dollar of common stockholders investment in the company

A

Return on Equity

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9
Q

Market-to-book

A

Market Price Per Share / Book Value Per Share

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10
Q

Measures how much investors will pay for the company’s stock per dollar of equity

A

Market-to-book

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11
Q

Caution Using Ratios

A

Historical data may not reflect future performance

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12
Q

Accounting principles and practices

A

Caution Using Ratios

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13
Q

Sales and expenses can fluctuate- seasonality

A

Caution Using Ratios

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14
Q

Different fiscal year-ends

A

Caution Using Ratios

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15
Q

One-time events can distort

A

Caution Using Ratios

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16
Q

Large firms often have multiple divisions, may impact the comparability with other companies

A

Caution Using Ratios

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17
Q

Company’s often “window dress” their financial statements

A

Caution Using Ratios

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18
Q

Ratios may not be calculated consistently

A

Caution Using Ratios

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19
Q

Money and ideas

A

fuel the economy’s financial engine

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20
Q

Flow of capital

A
  1. Investors to 2. Businesses to 3. Ideas to 4. Returns back to Investors. Retained Earnings in the middle
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21
Q

Type 1 Players

A

No money, no ideas

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22
Q

Type 2 Players

A

Money, but no ideas- lend money to type 3 people, capital provided in the form of equity or debt

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23
Q

Type 3 Players

Study These Flashcards
A

No money, but ideas- idea generators, rely on type 2 for capital, RD, profits from ideas are returned to investors in the form of dividends

24
Q

Type 4 Players

Study These Flashcards
A

Money and ideas

25
Sole Proprietorship
most common type of business, owned by single or sole individual, easy to start, owner has complete control, all profits (personal income), UNLIMITED LIABILITY
26
Partnership
multiple owners or partners, control is determined by partners' ownership percentages, UNLIMITED LIABILITY
27
Corporation
Legally independent separate from its owner, owners- shareholders, run by professional managers, limited liability, subject to double-taxation
28
Hybrid
S corporations- limited liability sole proprietorships, LLPs- limited liability partnerships, LLCs- limited liability companies, avoid double-taxation, limited liability
29
Agency problem
CEOs put their personal interests before the interests of the shareholders, conflict of interest
30
How to fix agency problem
align CEO and shareholder interests, make them the owners, link compensation to shareholder value, Board of Directors manages problem through corporate governance role
31
Accounting
focuses on the past, what happened and why?
32
Finance
focuses on the present and future, what's next?
33
Financial Crisis of 2008
greed, dishonesty, subprime mortgages, traded fix rate for variable rate
34
Cash-basis accounting
sales are recorded when cash is received, expenses are recorded when cash is paid
35
Accrual-basis
sales are recorded when goods/services are delivered/performed, expenses are recorded when goods/services are received
36
Balance sheet
assets, liabilities, and equity
37
Assets
items of ownership having economic
38
Liabilities
represent sacrifices of future economic benefits that an entity is obliged to make other entities as a result of past transactions or events
39
Equity
difference between the values of assets and liabilities
40
Balance sheet equation
Assets = Liabilities + Equity
41
Net Working Capital
Current Assets - Current Liabilities | A measure of a company’s ability to pay its obligations; net working capital should be positive
42
Financial management involves decisions about which of the following?
Which projects to fund, How to minimize taxation, What type of capital should be raised
43
This type of business organization is entirely legally independent from its owners
Public corporations
44
The practice generally known as double taxation is due to:
corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends.
45
For corporations, maximizing the value of owner's equity can also be stated as:
maximizing the stock price.
46
These individuals help firms access capital markets and advise managers about how to interact with those capital markets.
Investment bankers
47
Which of the following can create ethical dilemmas between corporate managers and stockholders?
Agency relationship
48
The biggest disadvantage of the sole proprietorship is:
unlimited liability
49
Which of the following statements is correct?
Accountants are focused on what happened in the past.
50
Which type of ratio measures the dollars of current assets available to pay each dollar of current liabilities?
Current
51
Which of these statements is true?
A high inventory turnover ratio or a low days' sales in inventory is a sign of good inventory management.
52
Which of the following measures the number of days accounts receivable are held before the firm collects cash from the sale?
Average collection period
53
Which of the following refers to the amount of debt versus equity a firm has on its balance sheet?
Capital structure
54
How is inventory turnover related to days' sales in inventory?
The lower the turnover rate, the more days' sales that are held in inventory. The shorter the inventory period, the higher the turnover rate.
55
Which of these factors are key to finding a firm to use for comparative purposes in cross sectional analysis?
key factors are similar markets, operations, and asset sizes
56
Which of these contributed to a worsening of the financial crisis?
lowered business outlooks, double digit unemployment, weakened financial institutions

Finance 305 (1 decks)

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