Finance 300 Study Guide

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Short-Term Solvency Ratio: A) Current Ratio = Current Assets / Current Liabilities, B) Quick Ratio = (Current Assets – Inventory) / Current Liabilities, C) Cash Ratio = Cash / Current Liabilities Asset Utilization Ratios: A) Turnover = Sales / Total Assets, B) Inventory Turnover = Cost of Goods Sold / Inventory, C) Receivables Turnover = Sales / Accounts Receivables Long-term Solvency Ratio: A) Total Debt Ratio = Total Debt (Current Liabilities + Long term Liabilities) / Total Assets, B) Debt-Equity Ratio = Total Debt / Total Equity, C) Equity Multiplier = Total Assets / Total Equity, D) Times Interest Earned = EBIT (Earnings Before Interest & Tax) / Interest Expense, E) Cash Coverage Ratio = (EBIT + Depreciation) / Interest Expense Profitability Ratios: A) Profit Margin = Net Income / Sales, B) Return on Assets (ROA) = Net Income / Total Assets, C) Return on Equity (ROE) = Net Income / Equity Others: Days Sales in Inventory = 365 / Inventory Turnover (COGS / Inventory), Debt Ratio = Total Debt / Total Assets, DuPont Identity: ROE = Profit Margin x Total Asset Turnover x Equity Multiplier Balance Sheet: Assets, Liabilities, Inventory, Accounts Receivables, Equity Income Statement: Sales, Cost of Goods Sold, Depreciation, EBIT, Interest Paid, Net Income, Dividends CHP1&2 The form of business subject to the highest taxation to itself and owners is a: C-Corp\ Which form of business issues shares to its owners, limits the number of shareholders, but avoid being taxed as a corporation? S-Corp\ Which form of business has no differentiation or liability protection for its owner(s)? Sole Pro\ Increasing the market price of a companies stock will always lead to shareholder wealth maximization. False\ Management is seeking to provide the best long term value for the shareholders. This concept is referred to as: Shareholders Wealth Maximization\ The "True" Value of a stock is called the: Intrinsic Value\ The price of the last sale on the NYSE of a share of stock is the: Market Price\ If a stock's market price is equal to the intrinsic value then the stock is considered to be at: Equilibrium\ An investment project is good for the long term value of a company.\ A marketplace buying and selling tangible assets is referred to as a: Physical Market\ A marketplace buying and selling options to trade other assets or contracts that have a value based on another security is done in a: Derivatives Market\ Which type of market is designed for short term investments or debt securities? Money Market\ The goal of the firm's management in the long run should be to push the stock price to the: Highest Intrinsic Value\ Capital allocation connects savers/investors with business that would like to use the money of the savers to grow their business\ Goldman Sachs is an investment bank.\ Insurance companies are also financial intermediaries.\ the spot market requires buyers and sellers to settle immediately\ The money market is where short term debts and securities are bought and sold. It also includes longer term bonds that are maturing in the short term period.\ The capital market is where stocks, long term bonds, and other financial instruments with long term intentions. Typically anything 2-3 years in term or greater.\ A security that draws its value from the price of some other asset is called Derivatives\ Mortgages are long term borrowing typically for 15-30 years and would be bought and sold in the capital market.\ Physical goods like wheat, coal, gold are all trade on the physical market\ Investment Banks specialize in issuing new securities and facilitate in raising capital for entities needing additional financial resources.\ Commercial banks specialize in offering financial services on a retail level to consumers and businesses. Typically commercial banks are part of larger financial services corporations.\ Credit unions combine the power of consumers together. They take risks as a group on other members. The strength of a...
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