#1
What is the primary goal of financial management in a business?
Maximizing shareholder wealth
ExplanationOptimizing decisions to increase the value of the company for its owners.
#2
Which financial statement provides a snapshot of a company's financial condition at a specific point in time?
Balance sheet
ExplanationSummarizes assets, liabilities, and equity at a given moment.
#3
What is the purpose of a cash flow statement in financial reporting?
To provide information about the company's sources and uses of cash
ExplanationDetails cash inflows and outflows during a specific period.
#4
Which financial ratio measures a company's ability to cover its interest expenses with its earnings?
Interest Coverage Ratio
ExplanationAssesses a company's ability to meet interest obligations.
#5
What does the term 'EBITDA' stand for in finance?
Earnings Before Interest, Taxes, Depreciation, and Amortization
ExplanationIndicator of operational profitability excluding certain expenses.
#6
What is the formula for calculating Return on Investment (ROI)?
(Net Income - Dividends) / Total Assets
ExplanationMeasure of profitability relative to total investment.
#7
What does the term 'opportunity cost' refer to in business decision making?
The cost of missed opportunities when a choice is made
ExplanationThe potential value sacrificed when opting for one alternative over another.
#8
What is the purpose of sensitivity analysis in financial management?
To analyze the impact of changes in key variables on financial outcomes
ExplanationAssessing how variations in inputs affect financial results.
#9
Which of the following is NOT a primary function of financial markets?
Determining government tax policies
ExplanationFinancial markets focus on trading securities, not policymaking.
#10
What is the purpose of a cost-benefit analysis in business decision making?
To assess the profitability of an investment or project
ExplanationEvaluating whether benefits outweigh costs for a decision or project.
#11
Which financial ratio measures a company's ability to meet short-term obligations with its most liquid assets?
Quick ratio
ExplanationIndicator of liquidity and short-term solvency.
#12
Which of the following is NOT a component of the DuPont analysis model?
Interest coverage ratio
ExplanationDuPont analysis typically involves ROE components, excluding interest coverage.
#13
In capital budgeting, what does the payback period measure?
The time it takes to recover the initial investment
ExplanationDuration for recouping the initial capital outlay for an investment.
#14
Which financial metric is used to evaluate the efficiency of inventory management?
Inventory Turnover Ratio
ExplanationMeasures how quickly a company turns over its inventory.
#15
What does the concept of 'capital structure' refer to in financial management?
The mix of long-term debt and equity financing used by a company
ExplanationProportion of debt and equity in a company's financial structure.