#1
Which of the following is a characteristic of a sole proprietorship?
Unlimited liability
ExplanationOwners are personally responsible for all business debts.
#2
What is the primary advantage of a partnership?
Ease of formation
ExplanationPartnerships are relatively easy to establish compared to other business structures.
#3
What is the main advantage of a corporation as a form of business ownership?
Limited liability
ExplanationShareholders are not personally liable for the company's debts.
#4
Which of the following is NOT a type of financial statement?
Profit and loss statement
ExplanationThe profit and loss statement is also known as the income statement.
#5
What is the legal status of a limited liability company (LLC)?
It is considered a separate legal entity
ExplanationAn LLC provides limited liability while being treated as a separate entity.
#6
Which financial statement provides a snapshot of a company's financial position at a specific point in time?
Balance sheet
ExplanationThe balance sheet shows assets, liabilities, and equity at a given moment.
#7
What does ROI stand for in finance?
Return on Investment
ExplanationROI measures the profitability of an investment.
#8
What is the purpose of a cash flow statement?
To detail the sources and uses of cash during a specific period
ExplanationCash flow statement tracks how cash is generated and used.
#9
What is the term for the process of converting assets into cash?
Liquidity
ExplanationLiquidity refers to the ease of converting assets into cash without affecting their value.
#10
What is the primary purpose of financial accounting?
To record and summarize business transactions
ExplanationFinancial accounting involves documenting and summarizing business transactions.
#11
What is a leveraged buyout (LBO)?
A restructuring of a company's capital structure using debt
ExplanationLBO involves acquiring a company using a significant amount of borrowed money.
#12
What is meant by the term 'financial leverage'?
The use of debt to increase returns to shareholders
ExplanationFinancial leverage amplifies returns through the use of borrowed money.
#13
What is the main advantage of issuing bonds for a company compared to obtaining a bank loan?
Fixed maturity date
ExplanationBonds have a predetermined maturity date, providing clarity on repayment.
#14
What is the primary function of a financial manager?
To maximize shareholder wealth
ExplanationFinancial managers aim to enhance the value of the company for shareholders.
#15
What is the purpose of financial risk management?
To minimize the impact of exchange rate fluctuations
ExplanationFinancial risk management aims to reduce the impact of currency exchange rate fluctuations on a company's finances.