Finance 3101 Keen Final Exam Guaranteed A+
What is meant by "benchmarking"? ️comparing a companies financial data to another companies
data or to its own previous data
What is the difference between Trend (time-series) and cross-section analysis? ️trend: one company,
multiple time perio...
Finance 3101 Keen Final Exam Guaranteed A+
What is meant by "benchmarking"? ✔️comparing a companies financial data to another companies
data or to its own previous data
What is the difference between Trend (time-series) and cross-section analysis? ✔️trend: one company,
multiple time periods
cross section: multiple companies, multiple time periods
How do we common-size the BS and IS and for what purpose? ✔️divide everything by revenue or sales
What are some synonyms for "ratio" and what does EVERY ratio tell us? ✔️ratio = fraction, proportion,
percentage
Tells us "how many times the top is of the bottom"
What is the DuPont framework and what is it used for? ✔️A way of calculating ROE using 3 different
ratios.
The Dupont Framework is used to explain how companies can increase their return for investors.
What does the Equity Multiplier represent? ✔️The use of debt (financial leverage)
How does increased use of debt affect the cash coverage ratio and, ceteris paribus, a firm's ROE
(through the DuPont framework) ✔️More debit = Increase in ROE
True or False: Every ratio tells us for every one of what's on top, here's how many we have of what's on
the bottom ✔️False
True or False: Ratio, proportion, fraction, and percent all mean the same thing ✔️True
True or False: if the debt-equity ratio is 1.25, the equity multiplier would be 2.50 ✔️False
, True or False: the higher the equity multiplier, the greater is the proportion of a firm's assets that are
financed with equity ✔️False
True or False: Common-size values on the balance sheet show each item as a percent of total equity
✔️False
True or False: if sales increase by 5% and total assets fall by 1%, the TAT ratio would down by
approximately 6% ✔️False
True or False: a decrease in the current ratio indicates improvement in a firm's liquidity ✔️False
True or False: an increase in the cash coverage ratio means that a firm is likely to default on its
outstanding debt ✔️True
True or False: Ceteris paribus, according to the DuPont framework, an increase in the use of debt would
increase a firm's ROE ✔️True
True or False: For firms with lower P/E ratios, investors are valuing each dollar of earnings less than for
firms with higher P/E ratios ✔️True
True or False: Corporate managers who are doing a better job of serving owners would see the market-
book ratio their firm exceed the ratio for managers who are not doing as good a job ✔️True
What is meant by the "cost of capital" and why is the "cost of capital" important? ✔️cost of capital
represents a hurdle rate that a company must overcome before it can generate value. It is important to
capital budgeting to determine whether a company should proceed with a project
What is a firm's WACC used for? ✔️"Weight Average Cost of Capital"
WACC is the average rate a company expects to pay to finance its assets.
Used to estimate how much interest they will have to pay each year
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