D351 Functions of Human Resource Management - Set 2 - Part 1

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Financial markets serve as platforms for the exchange of capital between lenders and borrowers, enabling the efficient allocation of resources.

Correct Answer: Balance sheet

The balance sheet provides a snapshot of a company’s financial position, showing its assets, liabilities, and equity at a specific date.

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Working capital is the difference between a company’s current assets and current liabilities, representing the liquidity available for daily operations.

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A current ratio of less than 1 means the company may struggle to cover its short-term obligations with its current assets.

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EPS is calculated by dividing net income by the average number of outstanding shares, indicating how much profit is allocated to each share.

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A beta greater than 1 indicates that the stock’s price moves more than the market, meaning it is more volatile.

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ROE measures how effectively a company generates profit from its shareholders' equity.

Correct Answer: The ability to convert assets into cash quickly

Liquidity refers to the ability to convert assets into cash without significant loss of value.

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ROE = Net Income / Average Equity. In this case: $150,000 / $500,000 = 30%.

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The main objective of financial management is to maximize shareholder wealth by increasing the value of the company’s stock.

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Gross profit = Sales - COGS. In this case: $500,000 - $300,000 = $200,000.

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Capital budgeting involves evaluating and selecting investments in long term projects or assets that are expected to generate future cash flows.

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Negative net working capital means the company’s current liabilities exceed its current assets, potentially indicating liquidity issues.

Correct Answer: Leverage decreases ROE

Leverage, or using debt to finance assets, can increase ROE by amplifying the returns on shareholders’ equity, but it also increases risk.

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Annual coupon payment = Coupon rate × Face value. In this case: 5% × $1,000 = $50.

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The cash flow statement shows how cash moves into and out of a company over a period of time.

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Bonds payable are considered long-term liabilities as they are obligations due after one year.

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Market capitalization is calculated by multiplying a company’s current stock price by its outstanding shares.

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The P/E ratio indicates how much investors are willing to pay for each dollar of a company’s earnings.

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Equity = Total Assets - Total Liabilities. In this case: $800,000 - $500,000 = $300,000.