Financial Management Fundamentals Quiz

Financial management aims to maximize the value of shareholders' investments.

ROI measures the return generated on an investment relative to its cost.

Financial managers aim to make decisions that enhance the value of the firm for its shareholders.

The income statement summarizes a company's revenues, expenses, and profitability over a specified period.

The current ratio measures a company's ability to cover short-term liabilities with its short-term assets.

The balance sheet summarizes a company's assets, liabilities, and equity at a given moment.

The time value of money underscores the principle that money today is worth more than the same amount in the future due to its potential earning capacity.

The current ratio measures a company's short-term liquidity by comparing its current assets to its current liabilities.

Leverage refers to using debt to finance operations, magnifying returns to shareholders but also increasing risk.

Financial ratio analysis helps evaluate a company's financial health by examining relationships between different financial variables.

Liquidity is the ease with which an asset can be converted into cash without significantly affecting its price.

While important, dividend yield is not typically a factor in capital budgeting decisions, which focus on long-term investment projects.

The efficient market hypothesis posits that asset prices already reflect all available information, making it difficult for investors to consistently outperform the market.

EPS measures a company's profitability per outstanding share of common stock.

CAPM is a model used to determine the expected return on an investment based on its risk relative to the overall market.

Financial risk management aims to minimize the negative impact of uncertainty and market fluctuations on a firm's financial performance.