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HBX core: Financial Accounting- Questions and Answers
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HBX core: Financial Accounting- Questions and Answers
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HBX core: Financial Accounting-Questions and Answers
Period between distributing cash and collecting funds associated with a given operation (e.g.,
sales).
leverage Correct Ans-Average total assets / average total equity
Debt to Equity Ratio Correct Ans-Average Total Liabilities/Average Stockholder's Equity
ROE Correct Ans-Return on equity = profitability x efficiency x leverage = profit margin (net
income/sales) x asset turnover (sales/assets) x leverage (assets/equity) = net income/ owner's
equity
EBIAT Correct Ans-EBIAT is an acronym for Earnings Before Interest After Taxes. It is a
measure of how much income the business has generated while ignoring the effect of financing
and capital structure of the business. It is calculated by adding back interest and taxes to net
income, and then calculating and subtracting income tax expense based on the earnings before
interest and taxes.
= EBIT x (1 - tax rate)
Inventory Turnover Correct Ans-cost of goods sold/average inventory
Days in Inventory Correct Ans-365/inventory turnover = avg inventory / COGS / 365
, Current Ratio Correct Ans-Current assets / current liabilities
Measure of business's ability to pay short term obligations
Quick Ratio Correct Ans-(Current assets - inventory) / current liabilities
Aka acid test ratio
Interest coverage ratio Correct Ans-Aka times interest earned
= EBIT / interest expense
FCF Correct Ans-= (1-t) x EBIT + DEP - CAPX - change in NWC
free cash flow is the amount of cash a company is expected to generate from normal operations
t = tax rate
EBIT = before interest and taxes
DEP = depreciation
CapX = capital expenditures
NWC = net working capital
Gordon Growth Model Correct Ans-Present value of infinite cash flows = cash flows in final
year of projection / (discount rate - growth rate)
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