D351 Functions of Human Resource Management - Set 5 - Part 1

Correct Answer: To measure a company’s ability to meet short-term obligations

The current ratio is a liquidity ratio that measures whether a company has enough resources to meet its short-term liabilities.

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Mutual funds offer investors professional management and diversification by pooling funds to invest in a variety of securities.

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The P/E ratio is used to assess whether a company’s stock is overvalued or undervalued relative to its earnings.

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A primary market transaction occurs when a company issues new securities directly to investors, typically to raise capital.

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WACC is the average rate that a company is expected to pay to finance its assets, reflecting both debt and equity costs.

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Leverage refers to the use of debt to finance investments, potentially amplifying returns but also increasing risk.

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ROE is calculated as net income divided by total equity. In this case: $200,000 ÷ $1,000,000 = 20%.

Correct Answer: To improve the liquidity of assets

Diversification reduces risk by investing in a variety of assets, so that poor performance in one area is offset by better performance in others.

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Liabilities are what the company owes to others, including loans, accounts payable, and other financial obligations.

Correct Answer: Collecting accounts receivable more quickly

Working capital is calculated as current assets minus current liabilities. Increasing liabilities without increasing assets reduces working capital.

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Cost of debt is the effective interest rate a company pays on its borrowed funds, such as loans or bonds.

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The cash flow statement provides details about how much cash is entering and leaving the company from operating, investing, and financing activities.

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Capital structure refers to how a company finances its overall operations and growth through a combination of debt and equity.

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Operating leverage occurs when a company has fixed costs that must be covered, which can magnify the impact of sales changes on profitability.

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Financial forecasting helps businesses plan for the future by estimating revenues, expenses, and capital needs.

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ROA measures a company’s efficiency in using its assets to generate profit.

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EBIT represents a company’s operating profit, excluding interest expenses and taxes.

Correct Answer: To minimize taxes

The primary objective of financial management is to increase the value of the company’s stock and, consequently, the wealth of its shareholders.

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Market capitalization is calculated by multiplying the stock price by the number of outstanding shares, representing the total market value of the company’s equity.

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The annual interest payment is calculated by multiplying the coupon rate by the face value. In this case: 0.05 × $1,000 = $50.