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Villanova Business Dynamics Final Questions and CORRECT Answers 2024/2025
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Villanova Business Dynamics Final Questions and CORRECT Answers 2024/2025
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Villanova Business Dynamics FinalACCOUNTING: purpose ** of financial ratios - ANSto track a firm's performance over time and
compare a firm's performance with the performance of other firms
Liquidity: - ANSmeasure firm's ability to pay its bills when due
Liquidity: Current Ratio: - ANStest firm's ability to pay off liabilities due within one year
Current Assets/Current Liabilities (> 2 is adequate)
Liquidity: Quick Ratio: - ANSmore stringent test of solvency
(Current Assets - Inventory)/Current Liabilities **
Leverage: - ANSmeasure the degree to which a firm relies on borrowed funds
Leverage: Debt to Equity Ratio: - ANStests how much a firm relies on debt (borrowing) vs.
investment/retained earnings (equity)
Total Liabilities/Owners' Equity (over 100% = high reliance on debt)
Profitability: - ANSmeasures a firm's financial performance - using resources to achieve profits
Basic Earnings Per Share (EPS): - ANSindicates how much return common stockholders
receive for each of their shares
Net Income/Number of Common Shares Outstanding
Return on Sales: - ANSindicates how well a firm is generating profitable sales
Net Income/Net Sales
Return on Equity: - ANSmeasures how well a firm earns for every dollar invested collectively by
all of its owners/stockholders - indirectly measures risk
Net Income/Owners' Equity
Activity: - ANSmeasure how effectively management is turning over inventory - how quickly
inventory is converted into sales
Inventory Turnover Ratio: - ANSCost of Goods Sold/Average Inventory
Types of Accounting (Cash vs. Accrual) - ANS• Key difference is when you record a revenue or
expense
• Cash: record revenue/expense at the time of sale (when cash is received or paid)
• Accrual: record revenue/expense when firm performs what it has promised
, o Revenue Recognition: **
1. Exchange of goods/services
2. At an agreed-upon price
3. With payment or promise of payment
External accountants: ** - ANSCPAs (Certified Public Accountants) employed by the "Big Four"
accounting firms who provide services to large corporations or CPAs who provide services to
small to medium size companies (SMEs) and individuals
Internal accountants: - ANSspecialize in preparing/analyzing financial data for use by internal
managers (managerial accounting **) and outside stakeholders (financial accounting)
The Accounting System - ANS• The financial system used to measure, record/classify, analyze
and report all the transactions involved in its value-creation process
• Stockholders, managers, and employees all use these statements to analyze the financial
health and improve company performance
Balance Sheet: - ANSo Summary of the financial conditions of a company on a specific date (a
"snapshot")
o Uses the accounting equation: assets - liabilities = owners' equity
o Equation is balanced by double entry bookkeeping
Income Statement: - ANSo Profit and loss (P&L) statement over a period of time
o Major categories: revenues & expenses
o Revenues - expenses = net income
Cash Flow Statement - ANSo Shows how much cash a company generates during a specific
financial period and how it is used (cash flow in and cash flow out)
o Most important of the three statements
o Two methods for preparing statement: direct and indirect
o Has three parts: Cash from...
1. Operating Activities
2. Investing Activities
3. Financing Activities
2 Types of Entrepreneurs ** - ANS• Micropreneurs: people willing to accept the risk of starting
and managing the type of business that remains small, lets them do the kind of work they want
to do, and offers them a balanced lifestyle
• Intrapreneurs: creative people who work as entrepreneurs within corporations
Risks for Entrepreneurs - ANS• Level of individual/personal liability (debt)
• Taxation issues (personal/corporate - double taxation)
• Complexity of set-up and dissolution of business entity
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