FIN 081: Financial Management Quiz

Statement 1 - Financial information is necessary to arrive at a sound decision provided by accounting. Statement 2 - Mathematics is one of the tools used in decision-making.

• Both statements are true

• Only statement 1 is true

• Both statements are false

• Only statement 2 is true

Considered alone, which of the following would increase a company's current ratio?

• An increase in net fixed assets.

• An increase in notes payable.

• An increase in accrued liabilities.

• An increase in accounts receivable.

Through financial statements analysis, interested parties - such as managers, investors, and creditors - can identify the company's financial strengths and weaknesses and know about the following, except

• Profitability of the business firm

• Safety of the investment in the business

• The firm's ability to meets its obligations

• Composition of management running the firm

In financial statements analysis, expressing figures for a single year as a percentage of a base amount on the financial statement (for example, total assets in a balance sheet or sales in an income statement) is called

• Trend analysis.

• Horizontal common-size analysis

• Variance analysis.

• Vertical common-size analysis

Which of the following statements is CORRECT?

• Commercial paper is a form of short-term financing that is primarily used by large, strong, financially stable companies.

• Short-term debt is favored by firms because, while it is generally more expensive than long-term debt, it exposes the borrowing firm to less risk than long-term debt.

• Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate.

• Commercial paper is typically offered at a long-term maturity of at least five years

If the firm decides to take the cash discount that is offered on goods purchased on credit, the firm should

• pay as soon as possible.

• pay on the last day of the credit period.

• take the discount no matter when the firm actually pays.

• pay on the last day of the discount period.

Which of the following is not an advantage of short-term financing?

• It is easier to arrange

• It is less expensive

• Refinancing is frequently needed

• It affords the borrower more flexibility

Statement I- Although short-term interest rates have historically averaged less than long-term rates, the heavy use of short-term debt is considered to be an aggressive strategy because of the inherent risks associated with using short-term financing. Statement II- If a company follows a policy of "matching maturities," this means that it matches its use of common stock with its use of long-term debt as opposed to short-term debt.

• Only Statement I is true

• Both statements are true

• Only Statement II is true

• Both statements are false

The chief financial officer of Smith Glass Inc. follows the policy of matching the maturity of assets with the maturity of financing. The implications of this policy include all of the following except that

• The seasonal expansion of cash, receivables, and inventory should be financed by short-term debt such as vendor payables and bank debt.

• The minimum level of cash, receivables, and inventory required to stay in business can be considered permanent, and financed with long-term debt or equity.

• Cash, receivables, and inventory should be financed with long-term debt or equity.

• Long-term assets, like plant and equipment, should be financed with long-term debt or equity.

The procedures followed by the firm for ensuring payment of its accounts receivables are called its

• Discount policy.

• Collection policy.

• Credit policy.

• Payables policy.