Chapter 9 End Of Chapter Questions
Chapter Nine
Finance: Acquiring and Using Funds to Maximize Value
Review Questions
1. What is the key goal that guides the decisions of financial managers? What challenges do financial managers face when they try to find the best sources and uses of funds to meet this goal?
The financial mangers goal is acquisition, financing, and management of assets. The challenges are investment, financing, and asset management decisions.
2. List the four basic types of financial ratios used to measure a company’s performance, give an example of each type of ratio and explain its significance.
Liquidity, Solvency, Profitability, and Efficiency are the basic types of financial ratios. The liquidity ratio is the ratio of current assets to current liabilities. Profitability ratios indicate management's ability to convert sales dollars into profits and cash flow. Solvency ratios indicate financial stability because they measure a company's debt relative to its assets and equity. Two common efficiency ratios are inventory turnover and receivables turnover. Business manager needs to determine what the financial health of the firm, he would use liquidity ratio. A business needs to figure out how to pay off the debt to the bank, they would use solvency ratio. A company makes paper plates; they need to know how much profit they can make. They would use profitability ratio. For example, if the bank cost totaled $5,000,000 and its revenues totaled $10,000,000, then using the formula above, we can calculate that bank’s efficiency ratio is $5,000,000 / $10,000,000 = 50%. This means that it costs the bank $0.50 to generate $1 of revenue. This is an example of efficiency ratio.
3. What are the key questions financial planning must answer? What role does the budgeted income statement and budgeted balance sheet play in finding answers to these questions?
What are your long term goals for the business? What are the most significant risks you are facing? How have you mitigated
Finance: Acquiring and Using Funds to Maximize Value
Review Questions
1. What is the key goal that guides the decisions of financial managers? What challenges do financial managers face when they try to find the best sources and uses of funds to meet this goal?
The financial mangers goal is acquisition, financing, and management of assets. The challenges are investment, financing, and asset management decisions.
2. List the four basic types of financial ratios used to measure a company’s performance, give an example of each type of ratio and explain its significance.
Liquidity, Solvency, Profitability, and Efficiency are the basic types of financial ratios. The liquidity ratio is the ratio of current assets to current liabilities. Profitability ratios indicate management's ability to convert sales dollars into profits and cash flow. Solvency ratios indicate financial stability because they measure a company's debt relative to its assets and equity. Two common efficiency ratios are inventory turnover and receivables turnover. Business manager needs to determine what the financial health of the firm, he would use liquidity ratio. A business needs to figure out how to pay off the debt to the bank, they would use solvency ratio. A company makes paper plates; they need to know how much profit they can make. They would use profitability ratio. For example, if the bank cost totaled $5,000,000 and its revenues totaled $10,000,000, then using the formula above, we can calculate that bank’s efficiency ratio is $5,000,000 / $10,000,000 = 50%. This means that it costs the bank $0.50 to generate $1 of revenue. This is an example of efficiency ratio.
3. What are the key questions financial planning must answer? What role does the budgeted income statement and budgeted balance sheet play in finding answers to these questions?
What are your long term goals for the business? What are the most significant risks you are facing? How have you mitigated