Financial Management Terms Quiz

ROI measures the profitability of an investment relative to its cost.

EPS (Earnings Per Share) indicates the company's profitability per outstanding share of common stock.

Stocks provide ownership in a corporation, whereas bonds are debt securities representing loans made by investors to the issuer.

EBIT measures a company's operating performance by subtracting operating expenses from revenues.

A balance sheet presents a company's financial position at a specific point in time, showing assets, liabilities, and equity.

The DuPont analysis examines a company's return on equity (ROE) by breaking it down into components, such as profit margin, asset turnover, and financial leverage. Tax rate is not directly considered.

WACC represents the average rate of return a company expects to pay to its investors.

EBITDA is a measure of a company's operating performance, calculated by adding back depreciation, amortization, and taxes to earnings before interest and taxes (EBIT).

NPV measures the difference between the present value of cash inflows and outflows over a specific period of time.

Leverage involves using borrowed capital as funding sources to increase the potential return on investment.

An IPO is the first sale of stock by a company to the public, marking the transition from private to public ownership.

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

Derivatives are financial instruments used to hedge risk or speculate on price movements.

FIFO is a method for valuing inventory based on the assumption that goods are sold or used in the order they are acquired.

Financial management aims to maximize the value of the firm to its owners, the shareholders.

Diversification involves spreading investments across various assets to mitigate the risk of significant loss.

Arbitrage involves exploiting price differences of identical or similar financial instruments in different markets for profit.