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Sophia Finance Milestone 1_Complete Questions and Answers (Latest 2020/2021)

Sophia Finance Milestone 1 1 Ratios that measure the value of a company's stock are __________. leverage ratios asset management ratios market ratios liquidity ratios CONCEPT Overview of Ratio Analysis 2 How are assets typically organized on a balance sheet? In order of value, with least valuable assets first. In order of value, with most valuable assets first. In order of liquidity, with more liquid assets first. In order of liquidity, with least liquid assets first. CONCEPT Standardizing Financial Statements 3 Betina is trying to convince a buyer to purchase her company. The buyer wants to know what the company's overall financial condition was on December 31, 2018. What type of financial statement should Betina provide? Balance sheet Cash flow statement Statement of changes in equity Income statement CONCEPT Introducing Financial Statements 4 Thomas is concerned about his company's ability to pay off its short-term debts. If he wants to know more about his company's liquidity, what should he do? Calculate his total liabilities Calculate his net working capital Calculate his total assets Calculate his debt to equity ratio CONCEPT The Balance Sheet 5 What is a question that should be asked about accounts payable when forecasting? How much product on hand is too much? What is the cash conversion cycle? How quickly can we replenish goods? How will our cash inflows be affected? CONCEPT Analyzing Forecasts 6 What was one outcome of the Sarbanes-Oxley Act of 2002? Top management of U.S. companies must now individually and personally certify the accuracy of financial information. CEOs are prohibited from earning bonuses tied to company stock performance. Expenses related to corporate compliance are now tax-deductible. Public corporations are no longer required to use independent auditors to review their accounting practices. CONCEPT Corporate Governance 7 After a significant economic recession, prices and investing activity in the stock market began trending consistently upward six years ago. In the last three months, this trend has reversed and prices have fallen steadily. How are the past three months of the stock market classified? Secular bear market Secular bull market Primary bear market Primary bull market CONCEPT Financial Markets 8 Under GAAP, how would dividends paid to company stockholders be accounted for on the statement of cash flows? As a decrease in cash flow from investment As an increase in cash flow from financing As a decrease in cash flow from financing As an increase in cash flow from operations CONCEPT The Statement of Cash Flows 9 Financial forecasting answers the question "__________" What will our sales be? What are our goals? When should we begin? Do we have enough production capacity? CONCEPT Financial Forecasting 10 Which of the following would explain a company’s day sales outstanding ratio rising from 32 to 41.25? The company's accounts receivable has decreased while total sales has increased. The company's accounts receivable has decreased while the average inventory has remained constant. The company's accounts receivable has remained constant while total sales has decreased. The company's accounts receivable has decreased while the average inventory has increased. CONCEPT Asset Management Ratios 11 What is the recent trend of algorithmic trading criticized for? Being too transparent Improving market liquidity Over-extending credit Increasing market volatility CONCEPT Trends and Issues in Finance 12 The primary factor behind all of finance is __________. equity time money debt CONCEPT Introducing Finance 13 Tom and Wendy are launching a life coaching business. They plan to have an equal say in any managerial business decisions and they plan to share any profits or losses. They are concerned about their exposure to liability, so they have purchased some professional insurance policies. However, they are pleased with how simple it has been to organize their business. Which form of business structure have Tom and Wendy likely adopted? Sole proprietorship S corporation Corporation Partnership CONCEPT Types of Business Organizations 14 If equity is $2 million and total revenue is $1.3 million, then ROE is __________. 65% incalculable without net profit data incalculable without EBIT data 35% CONCEPT Profitability Ratios 15 The pro forma balance sheet shows how the __________ resulting from a strategic plan will be financed. inventory AFN sales forecast equity CONCEPT Forecasting the Balance Sheet 16 Why is it good for businesses when personal values and company values align? Because companies are more likely to follow the law. Because managers can avoid having to deal with ethical questions. Because employees are more likely to uphold company values. Because employees are more likely to have moral sensitivity. CONCEPT Ethics: An Overview 17 If a company has a higher than usual cost of goods sold in a year, what potential effect does that have on its taxes? It potentially reduces them as a tax deduction. It potentially reduces them as a tax credit. It potentially increases them through declining balance amortization. Cost of goods sold does not affect corporate taxes. CONCEPT Tax Considerations 18 Georgia is interested in selling her company. Before seeking a buyer, she wants her income statements to show a trend of increasing gross profits. How can she achieve her goal? Reduce net sales Reduce cost of goods sold Reduce taxes paid Reduce operating expense CONCEPT The Income Statement 19 For which company can trend analysis be most useful? A mining company that recently changed its business model, but not its accounting practices A retail company that recently changed its accounting practices and its business model A banking company that recently changed its accounting practices, but not its business model A software company whose business model and accounting practices have remained stable over time CONCEPT Using Financial Ratios for Analysis 20 The process of predicting what the market would pay for a company's investments and bonds is __________. assessment appraisal financial management valuation CONCEPT Goals of Financial Management 21 One reason that ROE calculations are broken down into three components in the DuPont equation is that __________. it highlights exceptional financial planning it shows management where ROE improvements can be made it hides problem areas from analysts the numbers are more difficult to falsify CONCEPT The DuPont Equation 22 Preparing a cash flow forecast helps a company to avoid __________. higher financing costs net losses liquidity opportunity costs CONCEPT Building a Cash Budget 23 If Company A has a lower TIE ratio than Company B, then Company A has __________ than Company B. less likelihood of using cash on hand to meet its interest obligations poorer interest coverage a higher EBIT less long-term debt CONCEPT Debt Management Ratios 24 Which of the following is an example of an agency conflict? Board oversight Shareholder voting rights Managerial self-dealing Manager's salary CONCEPT Agency and Conflicts of Interest 25 Consider the following information: Total current assets $42,123 Deferred income taxes $2,638 Inventories $4,873 Prepaid expenses $1,554 Other assets $6,263 Total current liabilities $38,902 What is the current ratio? 0.97 1.08 1.15 1.21 CONCEPT Liquidity Ratios 26 If a sales increase is forecasted, how will it affect expenses on the pro forma income statement if market conditions are expected to remain stable? Expenses will increase. It depends on the type of product being sold. There will be no effect on expenses. Expenses will decrease. CONCEPT Forecasting the Income Statement 27 Consider the price to book ratios of the following companies: Company A: 5.45 Company B: 14.30 Company C: 10.08 Company D: 19.62 Which company do investors believe will create the most value from its assets? Company B Company A Company D Company C CONCEPT Market Value Ratios

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