CMA Exam: Study Unit #2

Question 1

Current Assets

Answer 1

1. Cash and equivalents
2. Securities
3. Net Acct Rec.
4. Inventories
5. Prepaid expenses

Question 2

Current Liabilities

Answer 2

1. Accounts Payable
2. Notes Payable
3. Current Maturities on LT debt
4. Unearned Revenue
5. Accrued Salary & Wages
6. Taxes Payable
7. Other Accruals

Question 3

Liquidity Ratios

Answer 3

1. Current Ratio
2. Quick Ratio
3. Cash Ratio
4. CF Ratio
5. NWC
6. NWC Ratio

Question 4

Liquidity Ratio

Current Ratio

Answer 4

CA/CL

Question 5

Liquidity Ratio

Quick Acid-Test Ratio

Answer 5

CA-Inv-Pre/CL

Question 6

Liquidity Ratio

Cash Ratio

Answer 6

CA+Sec/CL

Question 7

Liquidity Ratio

CF Ratio

Answer 7

CF. Op/CL

Question 8

Liquidity Ratio

NWC

Answer 8

CA-CL

Question 9

Liquidity Ratio

NWC Ratio

Answer 9

CA-CL/TA

Question 10

Activity Ratios

Answer 10

1. A/R Turnover
2. Days Sales in A/R
3. Inventory Turnover
4. Days Sales in Inventory
5. A/P Turnover
6. Days Sales in Purchases
7. Operating Cycle
8. Cash Cycle
9. Total Asset Turnover
10. Fixed Asset Turnover

Question 11

Actvity Ratios

A/R Turnover

Answer 11

NCS/Avg A/R

Question 12

Actvity Ratios

Day Sales Outstanding in Inventory Ratio

Answer 12

365 / Accounts Receivable Turnover Ratio

Question 13

Actvity Ratios

Inventory Ratio

Answer 13

COGS / Avg Inv

Question 14

Actvity Ratios

DSiI Ratio

Answer 14

365 / Inventory Ratio

Question 15

Actvity Ratios

A/P Turnover

Answer 15

Net Purchases / Avg A/P

Question 16

Actvity Ratios

Days Purchases in A/P

Answer 16

365 / Accounts Payable Turnover

Question 17

Actvity Ratios

Operating Cycle

Answer 17

Days Sales in A/R + Days Sales in Inventory

Question 18

Actvity Ratios

Cash Cycle

Answer 18

Operating Cycle - Days Purchaes in A/P

Question 19

Actvity Ratios

Total Asset Turnover

Answer 19

Net Sales/Avg TA

Question 20

Actvity Ratios

Fixed Assest TR

Answer 20

Net Sales/Avg P.P.E

Question 21

Solvency Ratios

Answer 21

Capital Structure Ratios

1. Total Debt to Total Capital
2. Debt to Equity
3. LT Debt to Equity
4. Debt to TA

Earnings Coverage

1. Interest Earned
2. Earnings to Fixed Charges
3. Cash Flow to Fixed Charges

Question 22

Solvency Ratios

Total Debt to Total Cap

Answer 22

Total Debt / Total Captial

Measures the % of the firm’s capital structure provided by creditors.

When ratio is low, more capital is supplied by stock holders.

Question 23

Solvency Ratios

Debt to Equity Ratio

Answer 23

Total Debpt / Stockholder’s Equity

Direct comparison of firm’s debt load vs. its equity stake

Lower ratio means lower relative debt burden, thus better changes of repaying creditors

Question 24

Solvency Ratios

LT Debt to Equity

Answer 24

Long-term Debt / Stockholders’ Equity

Long-term debt burden carried by company per dollar of equity.

Low ratio - firm will have easier time raising new debt since its low debt load makes it a good credit risk

Question 25

# Solvency Ratios Debt to TA Ratio (Debt Ratio)

Answer 25

Total Liabilities / Total Assets Total debt burden carried per dollar of assets is the same as the Total Debt to Total Capital. (Capital = Liabilties + Equity, which = Assets)

Question 26

# Solvency Ratios Times Interest Earned Ratio

Answer 26

EBIT / IE Ability to pay interest on debt obligations. Higher ratio = better financial position

Question 27

# Solvency Ratios Earnings to Fixed Charges Ratio

Answer 27

EBIT + IOL / IE + IOL + Div PS

Question 28

# Solvency Ratios CF to Fixed Charges Ratio

Answer 28

Pt OCF / IE + IOL + Div PS

Question 29

Fixed Charges

Answer 29

Interest Expense + Interest Portion of Operating Leases + Dividends on Preferred Stock

Question 30

Leverage Ratios

Answer 30

1. DoL 2. DOpL SPV 3. DOPL % 4. DFL SPV 5. DFL %

Question 31

# Leverage Ratios Degree of Leverage (DL)

Answer 31

Pre Fixed Cost Income / Post Fixed Cost Income

Question 32

# Leverage Ratios Degree of Operating Leverage (DOL) SPV

Answer 32

CM / OI or EBIT

Question 33

# Leverage Ratios Degree of Operating Leverage (DOL) % Change

Answer 33

% Change OI or EBIT / % Change Sales

Question 34

# Leverage Ratios Degree of Fin Leverage (DFL) SPV

Answer 34

EBIT / EBT

Question 35

# Leverage Ratios Degree of Fin Leverage (DFL) % Change

Answer 35

% Change NI / % Change EBIT

Question 36

Effect of Ratio if \> 1 and equal decreases in numerator & denominator?

Answer 36

Ratio Increases Ratio decreases if vice versa