Slides 6

Question 1

What is the basic structure of financial statements?

Answer 1

They follow the same basic structure as Ikea’s, despite being lengthy.

Question 2

Define institutional equilibrium.

Answer 2

The balance between stakeholders’ contributions and rewards/benefits.

Question 3

What are core stakeholders?

Answer 3

All core stakeholders share the values, objectives, governance, and organization of the firm.

Question 4

What is accounting?

Answer 4

Collecting, recording, measuring, classifying, summarizing business and financial transactions.

Question 5

Define profitability.

Answer 5

An indicator of a firm’s ability to cover negative components with positive income.

Question 6

Define solvency.

Answer 6

The firm’s ability to cover debt at any given moment.

Question 7

What does a profit and loss account measure?

Answer 7

The gains or losses from both normal and abnormal operations over a period of time.

Question 8

What is a cash flow statement?

Answer 8

A report of the inflows and outflows of cash, linking elements of the balance sheet and income statement.

Question 9

What are the three main financial statements?

Answer 9

• Income Statement * Balance Sheet * Cash Flow Statement

Question 10

What does a balance sheet represent?

Answer 10

A snapshot of the assets used by the company and the funds related to these assets at an instant in time.

Question 11

What are assets?

Answer 11

Resources controlled by the firm from which future economic benefits are expected to flow.

Question 12

What are liabilities?

Answer 12

The financial obligations a company owes to outside parties.

Question 13

Define fixed assets.

Answer 13

Physical items needed for the operations of the firm, such as machineries and buildings.

Question 14

What are net fixed assets?

Answer 14

Physical items minus accumulated depreciation needed for operations.

Question 15

Define investments in fixed assets.

Answer 15

Shares in other (non-consolidated) companies.

Question 16

What are intangible assets?

Answer 16

Assets that do not have a physical presence but have value for the firm’s activities.

Question 17

What is goodwill?

Answer 17

The value of intangibles in another company that the focal one has acquired.

Question 18

What are current assets?

Answer 18

Assets expected to be converted into cash within a year.

Question 19

Define accounts receivable.

Answer 19

Amounts due from customers within a year (trade credit).

Question 20

What are cash and equivalents?

Answer 20

Liquidity available to the firm.

Question 21

What are inventories?

Answer 21

Goods and raw materials held for the purpose of resale.

Question 22

What are owner’s funds?

Answer 22

The capital that is invested by the owners in the firm.

Question 23

Define issued common stocks.

Answer 23

Shares of ownership of the firm held by the investors (stockholders).

Question 24

What is the nominal value of a stock?

Answer 24

The price of a stock when it was issued, rather than its current market value.

Question 25

What are capital reserves?

Answer 25

Amounts retained in the company generated from sources other than normal trading.

Question 26

What are revenue reserves?

Answer 26

Amounts retained in the company generated by trading profits, often used to finance firm growth.

Question 27

What are long-term loans?

Answer 27

Financial obligations that are due after more than one year.

Question 28

What are long-term loans?

Answer 28

Debts that shall be paid within 3-5 years (medium-term) or even more than 20 years (long-term) ## Footnote Includes issued bonds (not due within 12 months) and mortgage loans.

Question 29

What is a mortgage?

Answer 29

A loan used to purchase or maintain a home, land, or other real estate, secured by the property as collateral ## Footnote Regular payments are divided into principal and interest.

Question 30

What are corporate bonds?

Answer 30

Investments in the debt of a business, commonly used by firms to raise debt capital.

Question 31

What defines short-term loans?

Answer 31

Debts towards financial institutions due within one year ## Footnote Application includes bonds to be paid within 12 months.

Question 32

What are accounts payable?

Answer 32

Amounts due to suppliers within one year.

Question 33

What does accounts payable represent?

Answer 33

The amount due to suppliers for goods or services received.

Question 34

What are miscellaneous current liabilities?

Answer 34

Other debts that shall be paid within 1 year ## Footnote Examples include current taxes and due-dividends.

Question 35

What is the cash conversion cycle (CCC)?

Answer 35

A metric that expresses the number of days it takes for a company to convert its inventory into cash flows from sales.

Question 36

How is total assets calculated?

Answer 36

Total assets = fixed assets + current assets (or also ∑ liabilities).

Question 37

What is capital employed?

Answer 37

Owners’ funds + long-term loans (or also = fixed assets + current assets - current liabilities).

Question 38

How is working capital defined?

Answer 38

Current assets - current liabilities (or also = owners’ funds + long-term liabilities - fixed assets).

Question 39

What does working capital indicate?

Answer 39

The amount of day-to-day operating liquidity available to a business.

Question 40

What does very low (negative) working capital indicate?

Answer 40

It may pose the firm at risk of running out of money.

Question 41

What does excessive working capital mean?

Answer 41

Funds which earn no profit and cannot earn the required rate of return on investment.

Question 42

What is the formula for owners’ funds?

Answer 42

Owners’ funds = fixed assets + current assets - current liabilities - long-term loans.