Expert Answers

 1.  The 100% number in a Common-Sized Income Statement is:

A. Total OPERATING EXPENSES

B. GROSS PROFIT

C. NET PROFIT

D. SALES (or REVENUES)

3. Net Working Capital (NWC) is defined as:

A. Book Value (BV) of a firm’s current assets.

B. Cash Balance minus current liabilities.

C. Current Assets minus Current Liabilities.

D.     Total Assets minus Current Liabilities

Which one of the following decreases a firm’s Net Income but does not affect its Operating Cash Flow if the firm owes no taxes for the current year?

A. Fixed Operating Expense

B. Variable Operating Expense

C. Depreciation Expense

E. Write Down of Accounts Receivable Account

5. ( TRUE  or  FALSE)  A firm’s NET INCOME as shown on its Income Statement is the same thing as its TAXABLE INCOME on its federal Income Tax Return.

6. Cash Flow From Assets (CFFA) is defined as:

A. Cash Flow to shareholders MINUS the cash flow to creditors.

B. Operating cash flow (OCF) PLUS cash flow to creditors plus the cash flow to shareholders.

C. Operating cash flow (OCF) PLUS or MINUS the change (∆) in Net Working Capital (NWC) PLUS or MINUS net capital spending.

D. Operating cash flow (OCF) PLUS net capital spending plus the change in Net Working Capital (NWC).

7.  Which of the following category of standard financial ratios is related to a firm’s capital structure?

A. Short-term solvency or LIQUIDITY ratios

b. Long-term solvency or financial LEVERAGE ratios

c. Asset management or TURNOVER ratios

d. Profitability ratios (Return On)

e. Market value ratios

8.  (   TRUE   or   FALSE  )   Generally, the DENOMINATOR in Turnover Ratios is the firm’s Sales (Revenues)

9.   Which of the following IS NOT one of the THREE INDIVIUDAL RASTIOS into which  the DUPONT IDENTITY decomposes?

A.      Return on Assets (ROA)

B.      Net Profit Margin

C.      Equity Multiplier

D.      Asset Turnover

10.  (   TRUE    or    FALSE   )   Ratio Analysis of a firm’s financial statements is only meaningful if ratios are compared to an appropriate standard OR they are part of a trend analysis of firm activities over time.  Those comparables are called BENCHMARKS.

11.  (    TRUE     or    FALSE   )  The goal of financial management is to MAXIMIZE the NET PROFIT which a company generates through effective and efficient use of its assets.

(Goal of Financial Management is maximization of shareholders wealth)

12.  The two important and fundamental principles which we have said dominate all financial management decision-making are  ____Risk_______________  and ______Return_____________.

13.  The three potential sources of a company’s assets are BORROWING (Debt), CAPITAL CONTRIBUTIONS (Sale of Stock) and ______Retained Earning_______________________.

14.   The components of Cash Flow From Assets (CFFA) (also known as Total Cash Flow)                are:

A. Operating cash flow,

B. Capital spending,

C. Additions to net working capital

Part II (36 points)(SHOW AND LABEL YOUR WORK)

A.      Consider the financial statements below for MQ Software (MQ)(all in 000s) :

Prepare MQ’s Statement of Cash Flows for 2011. (10)

(Make sure your statement reconciles year end cash balances)

CF From Operations $170

CF From Investing  ($120)

CF From Financing ($40)

Net CF                  $10

Beginning Cash                  $60

Plus: Net CF                       $10

Ending Cash                         $70