D365 Financial Management II - Set 1 - Part 1

Correct Answer: Balance sheet

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

Correct Answer: Total Liabilities / Total Equity

The debt-to-equity ratio measures a company's financial leverage by comparing its total liabilities to its total equity.

Correct Answer: 20%

Net profit margin = (Net Income / Sales) × 100. In this case: ($500,000 / $2,000,000) × 100 = 25%.

Correct Answer: To show the inflows and outflows of cash

A cash flow statement shows how changes in the balance sheet affect cash and cash equivalents, breaking down operating, investing, and financing activities.

Correct Answer: $50

The annual interest payment is calculated as the coupon rate multiplied by the face value. In this case: 5% of $1,000 = $50.

Correct Answer: The company has high liquidity

The current ratio is a measure of liquidity, with a high ratio indicating that the company can easily cover its short-term liabilities with its short-term assets.

Correct Answer: $10,000

The total equity raised is the number of shares issued multiplied by the price per share. In this case: 1,000 shares × $10 = $10,000.

Correct Answer: Firm-specific risk

Firm-specific risk, also known as unsystematic risk, can be mitigated through diversification, whereas systematic risk cannot.

Correct Answer: 40%

Gross profit margin = (Gross Profit / Sales) × 100. In this case: ($300,000 / $1,000,000) × 100 = 30%.

Correct Answer: The value of a stock compared to its earnings

The P/E ratio measures a company’s current share price relative to its per-share earnings.

Correct Answer: Maximizing shareholder wealth

The main goal of a financial manager is to maximize the value of the company’s stock, which in turn maximizes shareholder wealth.

Correct Answer: The company is spending more on investments

Negative cash flow from investing activities typically indicates that the company is investing in assets, such as property, equipment, or securities.

Correct Answer: The company sells its inventory five times a year

The inventory turnover ratio indicates how many times a company's inventory is sold and replaced over a period.

Correct Answer: To facilitate the raising of capital through the sale of stocks and bonds

Capital markets are venues where savings and investments are channeled between suppliers who have capital and those who need capital.

Correct Answer: Net Income / Shareholders' Equity

Return on equity (ROE) measures the profitability of a company in relation to the equity.

Correct Answer: At a premium

A bond is trading at a premium when its market price is above its face value.

Correct Answer: To project future revenues and expenses

Financial forecasting helps predict future performance by estimating revenues, expenses, and capital requirements.

Correct Answer: The stock is more volatile than the market

A beta greater than 1 indicates that the stock is more volatile than the market.

Correct Answer: Current assets minus current liabilities

Working capital is a measure of a company’s short-term financial health and its ability to cover short-term obligations.

Correct Answer: Depreciation

Depreciation is a non-cash expense because it represents the allocation of the cost of an asset over its useful life without any actual cash outflow.