Understanding Financial Concepts

What are the three main financial statements?

• Expense Report, Asset Statement, Financial Summary

• Profit and Loss Statement, Equity Statement, Revenue Report

• Financial Position Statement, Income Report, Cash Management Statement

• Income Statement, Balance Sheet, Cash Flow Statement

How do you calculate the current ratio?

• Current Ratio = Total Assets / Total Liabilities

• Current Ratio = Current Assets + Current Liabilities

• Current Ratio = Current Assets / Current Liabilities

• Current Ratio = Current Liabilities / Current Assets

What is the purpose of a cash flow statement?

• To report on the company's stock performance over the year.

• To summarize a company's total assets and liabilities.

• The purpose of a cash flow statement is to provide insight into a company's cash inflows and outflows over a specific period.

• To provide a detailed analysis of market trends.

Define the term 'liquidity' in finance.

• Liquidity is the ease of converting an asset into cash.

• Liquidity is the total value of an asset portfolio.

• Liquidity refers to the profitability of an asset.

• Liquidity is the risk associated with an investment.

What is the difference between debt and equity financing?

• Debt financing requires repayment with interest; equity financing involves selling ownership stakes.

• Equity financing is always less risky than debt financing.

• Debt financing does not require repayment; equity financing is a loan.

• Debt financing involves selling ownership stakes; equity financing requires repayment with interest.

Explain the concept of the time value of money.

• The time value of money is the principle that money available now is worth more than the same amount in the future due to its potential earning capacity.

• The time value of money only applies to investments in stocks.

• Future money is always worth more than present money.

• Money loses value over time due to inflation.

What does ROI stand for and how is it calculated?

• Return on Investment (ROI) is calculated as (Net Profit - Cost of Investment) x 100.

• Return on Investment (ROI) is calculated as (Net Profit / Cost of Investment) x 100.

• Return on Investment (ROI) is calculated as (Total Revenue / Cost of Investment) x 100.

• Return on Investment (ROI) is calculated as (Cost of Investment / Net Profit) x 100.

What is the significance of the balance sheet?

• The balance sheet is significant as it shows a company's financial position, helping assess its stability and liquidity.

• It is used to predict future sales growth.

• It provides a detailed income statement for the company.

• It lists only the company's revenue and expenses.

Describe the role of a financial manager in a corporation.

• To manage human resources and employee relations.

• To handle daily operations and logistics of the corporation.

• The role of a financial manager in a corporation is to manage financial health, oversee budgeting, forecasting, investment activities, and ensure compliance with regulations.

• To oversee the marketing strategies and advertising campaigns.

What is the difference between fixed and variable costs?

• Variable costs are always higher than fixed costs regardless of production.

• Fixed costs vary with production levels, while variable costs remain constant.

• Fixed costs do not change with production levels, while variable costs do.

• Fixed costs are only incurred when production is at maximum capacity.