PRE-COMPRE 2

FINAMA1

I. True/False (Write “T” for true & “F” for false.)

1. Financial Services are concerned with the duties of the financial manager.
2. Finance is concerned with the process institutions, markets, & instruments involved in the transfer of
money among & between individuals, businesses & gov’t.
3. A financial analyst is responsible for maintaining and controlling the firm’s daily cash balances. Frequently
manages the firm’s cash collections & disbursement activities & short-term investment; coordinates
short-term borrowings & banking relationships.
4. The board of directors is responsible for managing day-to-day operations & carrying out the policies
established by the chief executive officer.
5. The capital expenditure analyst/manager is responsible for the evaluation & recommendation of
proposed asset investments & may be involved in the financial aspects of implementation of approved
investments.
6. The corporate controller typically handles the accounting activities, such as tax management, data
processing, & cost & financial accounting.
7. The financial manager places primary emphasis on cash flows, the inflow and outflow of cash.
8. The corporate treasurer typically handles both the cost accounting & financial accounting.
9. The corporate controller is the officer responsible for the firm’s financial activities such as financial
planning & fund raising, making capital expenditure decisions, & managing cash, credit, the pension fund
& foreign exchange.
10. The corporate treasurers’ focus tends to be more external, while the corporate controller’s focus is more
internal.
11. The financial manager must look beyond financial statements to obtain insight into developing or existing
problems since the accrual accounting data do not fully describe the circumstances of a firm.
12. Financing decisions deal with the left-hand side of the firm’s balance sheet & involve the most
appropriate mix of current & fixed assets.
13. The president/CEO is elected by the firm’s stockholders & has ultimate authority to guide corporate
affairs & make general policy.
14. In limited partnerships, only one partner may assume limited liability. All other partners have to have
unlimited liability.
15. Financial managers actively manage the financial affairs of many types of business- financial &
nonfinancial, private & public, for-profit & not-for-profit.
16. The B/S is a statement which balances the firm’s assets (what it owns) against its debts (what it owes).
17. Time-series analysis is the evaluation of the firm’s financial performance in comparison to other firm(s)
at the same point in time.
18. As a rule, the necessary inputs to an effective financial analysis include at minimum, the I/S & the
statement of cash flow.
II. Multiple Choice
1. _________ analysis involves comparison of current to past performance & the evaluation of developing
trends.
a. Time-series
b. Cross-sectional
c. Marginal
d. Quantitative
 2. To analyze the firm’s financial performance, the ff. Types of ratio analysis EXCEPT _______ may be used.
a. Time-series
b. Vertical Analysis
c. Combined Analysis
d. Marginal Analysis
3. Which of the following is not a current asset?
a. Inventory
b. Prepaid Insurance
c. Fixture
d. Bonds Payable
4. Current asset MINUS current liabilities is the
a. Current Ratio
b. Net Worth
c. Working Capital
d. Quick Ratio
5. Current assets DIVIDED BY current liabilities is the
a. Current Ratio
b. Net Worth
c. Working Capital
d. Quick Ratio
6. The quick ratio EXCLUDES which of the following?
a. Accounts Receivable
b. Inventory
c. Cash
d. Accounts Payable

Use the following information to answer items 7-9.

Cash $ 10,000
Accounts Receivable 30,000
Inventory 80,000
Prepaid Insurance 6,000
Long-term Assets 200,000
Accounts Payable 30,000
Notes Payable due in 10 mos. 25,000
Wages Payable 5,000
Long-term Liabilities 70,000
Stockholders’ (Owner’s) Equity 196,000
7. The company’s working capital is
a. $ 60,000
b. $ 66,000
c. $ 196,000
d. $ 70,000
8. The company’s current ratio is
a. 1.0 : 1
b. 2.0 : 1
c. 2.1 : 1
d. 1.2 : 1
9. The company’s quick ratio is
 a. 0.7 : 1
b. 1.0 : 1
c. 2.0 : 1
d. 2.3 : 1

Use the following information to answer items 10-13.

For its most recent year a company had Sales (all on credit) of $ 830,000 and Cost of Goods Sold of
$525,000. At the beginning of the year, its Accounts Receivable was $ 80,000 and its Inventory was
$100,000. At the end of the year, its Accounts Receivable was $ 86,000 and its Inventory was $110,000.

10. The inventory turnover ratio for the year was

a. 4.8
b. 5.0
c. 7.9
d. 8.0
11. The accounts receivable turnover for the year was
a. 6.3
b. 7.5
c. 10.0
d. 8.9
12. On average how many days of sales were in accounts receivable during the year?
a. 27
b. 37
c. 49
d. 57
13. On average how many days of sales were in inventory during the year?
a. 14
b. 46
c. 73
d. 52

Use the following information to answer items 14-15.

A company’s net income after tax was $ 400,000 for its most recent year. The company’s income
statement included Income Tax Expense of $ 140,000 and Interest Expense of $ 60,000. At the
beginning of the year the company’s stockholders’ equity was $ 1,900,000 and at the end of the year it
was $ 2,100,000.

14. What is the time interest earned for the company?

a. 6.7
b. 9.0
c. 10.0
d. 11.2
15. What is the after-tax return on stockholders’ equity for the year?
a. 20%
b. 25%
c. 30%
d. 35%
16. Which of the following are likely to have the reported amounts on the balance sheet being close to their
current value?
a. Current Assets
b. Long-term Assets
c. Stockholders’ Equity
d. None of the above