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Financial Management Study Guide Problem




Question;I. Fill in the blank using a number of terms listed below.Accounting profit, AFN,Annual report, Asset Mgmt ratio, B/S,Capital gain, Capital intensity,Comparative ratio analysis, Current ratio,DSO, Du Pont Equation, EVA, Free CF, LumpyAssets, MVA, NOPAT, Operating capital,NOL, A-P-I-C, Pro forma Fin. Statements,R/Es,Sales,Sales forecast,Source of funds,Statement of CF, Statement of R/E, Stockholders? equity,TIE,Total asset turn over ratio,Trend analysisThe _______________ indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future._________________ are a set of ratios that measure how effectively a firm is managing its assets. Theinventory turnover ratio is sales divided by inventories. _____________ is used to appraise accountsreceivable and indicates the length of time the firm must wait after making a sale before receiving cash._______________ measures the turnover of all the firm?s assets: It is calculated by dividing sales by totalassets.____________ ratio is determined by dividing earnings before interest and taxes by the interest charges. This ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs.______________ are a group of ratios, which show the combined effects of profitability, asset management,and debt on operations. The profit margin on sales, calculated by dividing net income by sales, gives the profit per dollar of sales._______________ is an analysis of a firm?s financial ratios over time. It is used to estimate the likelihood ofimprovement or deterioration in its financial situation. ___________________ is when a firm compares itsratios to other leading companies in the same industry. This technique is also known as benchmarking.The _____________ is a report issued annually by a corporation to its stockholders. It contains basic financial statements, as well as management?s opinion of the past year?s operations and the firm?s future prospects.A firm?s _____________is a statement of the firm?s financial position at a specific point in time. Itspecifically lists the firm?s assets on the left-hand side of the balance sheet, while the right-hand side shows itsliabilities and equity, or the claims against these assets.______________ is the capital supplied by common stockholders--capital stock, paid-in capital, retainedearnings, and, occasionally, certain reserves. _______________ is the difference between the stock?s parvalue and what stockholders paid when they bought newly issued shares. ______________ is the portion ofthe firm?s earnings that have been saved rather than paid out as dividends.The _______________ shows how much of the firm?s earnings were retained in the business rather than paid out in dividends. Firms retain earnings primarily to expand the business, not to accumulate cash in a bank account. The _______________ reports the impact of a firm?s operating, investing, and financing activities on cash flows over an accounting period.______________ is a firm?s net income as reported on its income statement. Net cash flow, as opposed toaccounting net income, is the sum of net income plus non-cash adjustments. _____________ is the cash flow actually available for distribution to investors after the company has made all investments in fixed assets and working capital necessary to sustain ongoing operations._________________ is the difference between the market value of the firm (i.e., the sum of the market value of common equity, the market value of debt, and the market value of preferred stock) and the book value of the firm?s common equity, debt, and preferred stock. ___________________ represents the residual income that remains after the cost of all capital, including equity capital, has been deducted.________________ is the profit from the sale of a capital asset for more (less) than its purchase price.______________ can be carried backward for 2 years or forward for 20 years to offset taxable income in agiven year._______________ is the amount of interest bearing debt, preferred stock, and common equity used to acquire the company?s net operating assets. Without this capital a firm cannot exist, as there is no source of funds with which to finance operations.____________ is the amount of net income a company would generate if it had no debt and held no financial assets. So it is a better measure of the performance of a company?s operations because debt lowers income.Generally, ________________ are based on the recent trend in sales plus forecasts of the economic prospectsfor the nation, industry, region, and so forth. The sales forecast is critical to good financial planning.16. A ____________________ shows how an actual statement would look if certain assumptions are realized.With the percent of sales forecasting method, many items on the income statement and balance sheets areassumed to increase proportionally with sales.17. Funds are spontaneously generated if a liability account increases spontaneously (automatically) as sales increase. An increase in a liability account is a _________________, thus funds have been generated.18. _______________ are those funds required from external sources to increase the firm?s assets to support asales increase. A sales increase will normally require an increase in assets.19. ___________________ is the dollar amount of assets required to produce a dollar of sales.20. ______________ are those assets that cannot be acquired smoothly, but require large, discrete additions. For example, an electric utility that is operating at full capacity cannot add a small amount of generating capacity, at least not economically.21. Accounts payable, accrued wages, and accrued taxes increase spontaneously and proportionately with________. Retained earnings increase, but not proportionately with this.


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