Finance Management Quiz

The field of finance is closely related to the fields of:

• statistics and economics

• statistics and risk analysis

• economics and accounting

• accounting and comparative return analysis

Which of the following properly lists balance sheet items in order of liquidity, from most liquid to least liquid?

• Accounts receivable, inventory, marketable securities, cash.

• Cash, marketable securities, accounts receivable, inventory.

• Inventory, marketable securities, cash, accounts receivable.

• Cash, inventory, accounts receivable, marketable securities.

Amortization is considered a source of funds to the firm because:

• it is purely an accounting entry and doesn't involve a direct disbursement of funds, freeing up these funds for other investments

• it represents a reduction in asset holdings

• it represents an increase in an asset account

• amortization is not a source of funds

Profitability ratios measure:

• the speed at which the firm is turning over its assets

• the ability of the firm to earn an adequate return on sales, total assets, and invested capital

• the firm's ability to pay off short term obligations as they are due

• the debt position of the firm in light of its assets and earning power

Receivables turnover is:

• a profitability ratio

• a debt utilization ratio

• an asset utilization ratio

• a liquidity ratio

Financial ratios are used to:

• weigh and evaluate the operating performance of the firm

• provide an absolute benchmark of industry performance

• determine which firm will provide the highest return to investors

• None of the above are correct

The construction of the pro forma income statement is based on:

• the prior year's income statement

• sales projections and the production plan

• the cash budget

• the cash budget and prior year's income statement

The primary purpose of the cash budget is:

• to break the income statement down into monthly periods

• to determine monthly cash receipts

• to determine the collection pattern

• to allow the firm to anticipate the need for outside funding

Operating leverage may be defined as:

• the degree to which debt is used in financing the firm

• the difference between price and variable costs

• the extent to which capital assets and fixed costs are utilized

• the difference between fixed costs and the contribution margin

Financial leverage:

• reflects the firm's commitment to fixed, financial assets

• has no impact on the earning of the firm

• reflects the amount of debt used in the capital structure of the firm

• primarily affects the left side of the balance sheet