Finance 320F Questions and Answers
100% Pass
What is the purpose of "financial statements"?
Financial statements provide a summary of a company's financial performance and position,
including income statements, balance sheets, and cash flow statements.
How is "debt financing" different ...
Finance 320F Questions and Answers
100% Pass
What is the purpose of "financial statements"?
✔✔ Financial statements provide a summary of a company's financial performance and position,
including income statements, balance sheets, and cash flow statements.
How is "debt financing" different from "equity financing"?
✔✔ Debt financing involves borrowing funds that must be repaid with interest, while equity
financing involves raising funds by selling ownership stakes in the company.
What does "return on equity" (ROE) measure?
✔✔ Return on equity measures the profitability of a company relative to shareholders' equity,
calculated by dividing net income by average shareholders' equity.
Why is the "current ratio" important in assessing a company’s liquidity?
✔✔ The current ratio measures a company's ability to pay short-term obligations with its current
assets, calculated by dividing current assets by current liabilities.
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,What does "earnings before interest and taxes" (EBIT) represent?
✔✔ Earnings before interest and taxes (EBIT) represents a company's profitability from
operations before accounting for interest and income tax expenses.
How does the "debt ratio" indicate financial leverage?
✔✔ The debt ratio measures the proportion of a company’s total assets that is financed by debt,
indicating the level of financial leverage and risk.
What is "free cash flow" and why is it significant?
✔✔ Free cash flow is the cash generated by a company's operations after subtracting capital
expenditures, significant for assessing the cash available for distribution to investors.
How do "financial ratios" assist in evaluating company performance?
✔✔ Financial ratios help analyze various aspects of a company’s financial health, including
profitability, liquidity, efficiency, and solvency, aiding in performance evaluation and
comparison.
What is the "price-to-book" (P/B) ratio and how is it used?
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, ✔✔ The price-to-book ratio compares a company’s market value to its book value, indicating
whether a stock is overvalued or undervalued relative to its net assets.
Why is "cost of equity" an important concept in finance?
✔✔ The cost of equity represents the return required by equity investors for investing in a
company, crucial for evaluating investment opportunities and determining the required rate of
return.
What does the term "financial leverage" refer to in finance?
✔✔ Financial leverage refers to the use of borrowed funds to increase the potential return on
investment. It magnifies both gains and losses.
How is "return on investment" (ROI) calculated?
✔✔ Return on investment is calculated by dividing the net profit from an investment by the
initial cost of the investment, often expressed as a percentage.
What is the purpose of a "balance sheet" in financial reporting?
✔✔ A balance sheet provides a snapshot of a company's financial position at a specific point in
time, detailing assets, liabilities, and shareholders' equity.
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