Financial management theory and practice
Chapter 3
Page 114 questions :-
(3-1)
A- Annual report :- it’s a statement that gives an accounting picture of a firms operation and its financial position , there is two types of information are provided in annual report
First :- the verbal section witch often represents the firms operation result during the past two years or any period , and discuses new developments that will effect future operation . and explain why things turned out the way they did .

Second :- the presentation for four basic financial statements ( the balance sheet , the income statement , the statement of retained earnings and the statement of cash flows). these four statements illustrate (what has actually happened to assets , earnings , and the dividends over the past few years .

These information is used by investors to help form an expectation about the future earnings of the firm and dividends

B- Balance sheet :- it’s a snapshot of firms financial position in the last day of given period . and a balance sheet changes daily because of :- * Inventories are bought and sold .
* Fixed assets are added or retired .
* A bank loan balances are increased or paid down.
Its composite of a table of two sides :-
The left side of a balance sheet lists assets (which are the things that company owns) in order of liquidity or the length of time ,
The right side lists the claims that ( supplies , banks , bondholders , stockholders ) have against company and they must be paid in order ) .

C– the income statement :- reflects the financial performance over each of a given period of time ( monthly , quarterly and annually ) . witch contains net sales excluding (EBITDA) .which means earning before interest , taxes , depreciation and amortization .

D- depreciation :- its a policy applies by accountants , rather than treat the entire...

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CHAPTER3
ANALYSIS OF FINANCIAL STATEMENTS
Please see the preface for information on the AACSB letter indicators (F, M, etc.) on the subject lines.
True/False
Easy:
We tell our students (1) that to answer some of these questions it is useful to write out the relevant ratio or ratios, then think about how the ratios would change if the accounting data changed, and (2) that sometimes it is useful to make up illustrative data to help see what would happen. |
| | | |
| (3.1) Ratio analysis F K | Answer: a | EASY |
. | Ratio analysis involves analyzing financial statements in order to appraise a firm's financial position and strength. |
| | | | | | | | | |
| a. | True | | | | | | | |
| b. | False | | | | | | | |
| | | | | | | | | |
| (3.2) Liquidity ratios F K | Answer: a | EASY |
. | The current ratio and inventory turnover ratios both help us measure the firm's liquidity. The current ratio measures the relationship of a firm's current assets to its current liabilities, while the inventory turnover ratio gives us an indication of how long it takes the firm to convert its inventory into cash. |
| | | | | | | | | |
| a. | True | | | | | | | |
| b. | False | | | | | | | |
| | | | | | | | | |
|...

...FinancialManagement
Lecture 1- Introduction and Context 1Dr. Tarik Driouchi - tarik.driouchi@kcl.ac.uk Senior Lecturer- Financial & Mgt. studies Office Hours [WBW4.15]: Thursdays 4-6pm
A few words on the AAFM MSc…
Themes: Accounting Theory, Financial Accounting, Valuation, Corporate Governance, FinancialManagement & Markets, Behavioural Finance Structure: Taught modules (term 1 & 2) + Dissertation (term 3) KCL Keats, KCL e-resources and Q&As
2
Learning Objectives
• Main objectives
– To develop robust foundations in financialmanagementtheory and practice – To understand the role of financial managers in firms – To apply tools to analyse firm investment and capital budgeting decisions – To have an appreciation of financial markets and instruments – To reflect on the ethical dimensions of financialmanagement3
SMM602 Module Characteristics
• Approach/format
– 11 Lectures (fundamentals + in class discussions) – 10 (group-based) seminars/tutorials (exercises, discussions, cases and short presentations).
• Assessment
– 75% exam – 25% project (Due before Christmas)
• Useful reading
– Brealey and Myers: Essentials, principles or foundations – Boatright: Ethics in Finance – Academic articles recommended per...

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MBA 680 Assignment #2 (WEEK 2)
Abdullah Alshawdhabi
Coleman University
Chapter3
Question 3-1 Construct a balance sheet for EDCO on Dec 31, 201X using the following information: (Remember that the check is if Assets = Liabilities + Equity, if it balances you are probably correct, if it doesn’t balance, one or more of the items is mis-categorized or has the wrong sign).
Cash in the bank is $140,700
Account Payable = $515,450
The value of common stock outstanding = $400,000
To date accumulated depreciation of building = $135,200
Retained earnings = $899,700
Investments in Marketable Securities = $35,000
A bank note not due to be paid back to the bank until 3 years from today= $75,000
Accounts Receivable = $715,000
Accumulated depreciation of capital equipment = $675,350
Petty Cash kept in the office for minor purchases = $500
The corporation holds a note from a Board Member(who owes the corporation money for a personal loan) is due to pay back $12,500, within a year and $34,000 2 years from today
Original purchase costs of all capital equipment to date = $913,000
Inventories on hand = $300,000
Original purchase price of Land = $75,000
Accumulated depreciation on Land = $0
Original purchase price of building = $475,000
ANSWER
EDCO
For the year of Dec 31, 2013
Balance Sheet
Assets
$
Cash in the bank
140,700.00
...

...Problems (Page 112) 3-1 to 3.7,
3-1 Greene Sisters has a DSO of 20 days. The company’s average daily sales are $20,000.
What is the level of its accounts receivable? Assume there are 365 days in a year.
Answer:
Day Sales Outstanding= Receivables / Average Sales per day
AR = 20 X $20000 = $400,000
3-2 Vigo vacations has an equity multiplier of 2.5.The company’s assets are financed assets with some combination of long-term debt and common equity. What is the company’s debt ratio?
Answer:
The equity multiplier is 2.5. This means that for every dollar of equity the company has $2.5 of assets
Equity Multiplier = 2.5
Therefore Equity Ratio = 1/EM
Equity Ratio = 1/2.5 = 0.40
the formula is:
Debt Ratio + Equity Ratio = 1
Therefore Debt Ratio = 1 - Equity Ratio = 1 - 0.40 = 0.60 or 60%
3-3 Winston Washer’s stock price is $75 per share .Winston has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt and $6 billion in common equity. It has 800 million shares of common stock outstanding .What is Winston’s market/ book ratio?
Answer:
Market value per share = $75
common equity = 6,000,000
number of shares outstanding = 800 millions shares
Market-to-book ratio = market value per share/(common equity/number of shares outstanding)
Market-to-book ratio = $75/(6,000,000/800,000,000)...

...CHAPTER3
Answers to Concepts Review and Critical Thinking Questions
1. Time trend analysis gives a picture of changes in the company’s financial situation over time. Comparing a firm to itself over time allows the financial manager to evaluate whether some aspects of the firm’s operations, finances, or investment activities have changed. Peer group analysis involves comparing the financial ratios and operating performance of a particular firm to a set of peer group firms in the same industry or line of business. Comparing a firm to its peers allows the financial manager to evaluate whether some aspects of the firm’s operations, finances, or investment activities are out of line with the norm, thereby providing some guidance on appropriate actions to take to adjust these ratios if appropriate. Both allow an investigation into what is different about a company from a financial perspective, but neither method gives an indication of whether the difference is positive or negative. For example, suppose a company’s current ratio is increasing over time. It could mean that the company had been facing liquidity problems in the past and is rectifying those problems, or it could mean the company has become less efficient in managing its current accounts. Similar arguments could be made for a peer group comparison. A company with a current ratio lower than its peers could be more...

...CHAPTER 10
ANSWERS TO REVIEW QUESTIONS
9-1 Once the relevant cash flows have been developed, they must be analyzed to determine whether the projects are acceptable or to rank the projects in terms of acceptability in meeting the firm's goal.
9-2 The payback period is the exact amount of time required to recover the firm's initial investment in a project. In the case of a mixed stream, the cash inflows are added until their sum equals the initial investment in the project. In the case of an annuity, the payback is calculated by dividing the initial investment by the annual cash inflow.
9-3 The weaknesses of using the payback period are 1) no explicit consideration of shareholders' wealth; 2) failure to take fully into account the time factor of money; and 3) failure to consider returns beyond the payback period and, hence, overall profitability of projects.
9-4 Net present value computes the present value of all relevant cash flows associated with a project. For conventional cash flow, NPV takes the present value of all cash inflows over years 1 through n and subtracts from that the initial investment at time zero. The formula for the net present value of a project with conventional cash flows is:
NPV = present value of cash inflows - initial investment
9-5 Acceptance criterion for the net present value method is if NPV > 0, accept; if NPV < 0, reject. If the firm undertakes projects with a positive...

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Rustomjee Business School Rustomjee Business School
Class M 14, Sem3 Date: 15th November, 2013 Subject: Advance Financial Mgmt. Maximum marks: 60 , Time: 3 Hours
Sec A Answer any FIVE questions. All questions carry equal marks.
Q1 Explain the important functions of either Credit Rating Information Services of India Ltd. (CRISIL) or Information and Credit Rating Services Ltd. (ICRA).
Q2 The Balance Sheet of International Trade Ltd. as on 31st March, 2008 is as under
Liabilities Rs.(Lacs) Assets Rs.(Lacs)
Equity Share Capital (Rs. 10 per share) 90 Building 150
10% Long Term debt 120 Machinery 75
Retained Earnings 30 Stock 50
Current Liabilities 60 Debtors 20
Cash 5
Total 300 Total 300
The income assets turnover ratio of the company is 3, its fixed operating cost is 1/6 of sales and variable operating cost is 50% of sales. The corporate tax rate is 35%.
You are required to calculate:
The operating, financial and combined leverages.
The market price of the share if the P/E multiple is 2.5.
The level of EBIT if the EPS is (a) Rs. 15 and (b) Rs. 25.
Q3 The following information is available in respect of a company:
Capitalization Rate (ke) = 0.12
EPS = Rs. 15
Rate of return on investment = (1) 0.15 (2) 0.10
The company wants to know the effect on the market price of its shares under the two possibilities of ( r ) i.e. 0.15 and 0.10 under the two options.
If it does not declare any dividend,...