WGU C214 UNDERSTANDING FINANCIAL STATEMENTS AND RATIOS: A COMPREHENSIVE TEST QUESTIONS AND ANSWERS UPDATE
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Course
WGU C214
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WGU C214
WGU C214 UNDERSTANDING FINANCIAL STATEMENTS AND RATIOS: A COMPREHENSIVE TEST QUESTIONS AND ANSWERS UPDATE
How do you calculate the change in retained earnings?
Correct Answer: - Net Income-Dividends
Which of the following is generally true?
Correct Answer: - Operating income and EBIT are t...
WGU C214 UNDERSTANDING FINANCIAL STATEMENTS
AND RATIOS: A COMPREHENSIVE TEST 2024-2025
QUESTIONS AND ANSWERS UPDATE
How do you calculate the change in retained earnings?
Correct Answer: - Net Income-Dividends
Which of the following is generally true?
Correct Answer: - Operating income and EBIT are the same
*EBIT=Earnings before interest and taxes. Used to measure a firms operating income.
Which components are part of total assets?
Correct Answer: - Cash accounts receivable, inventory, long-term assets
Which components are part of current assets?
Correct Answer: - Inventory, cash, accounts receivable, short-term investments
Which components are part of total liabilities?
Correct Answer: - Bonds, accounts payable, mortgage
Why is the balance sheet known as a permanent statement?
Correct Answer: - Because the other statements reset at the end of the fiscal year
A basic equation for the balance sheet is?
Correct Answer: - Equity = Assets – liabilities
When fixed assets increase, what happens to cash?
Correct Answer: - Cash decreases
Which is the purpose of the statement of cash flows?
Correct Answer: - Explains the change in cash balance for a period of time.
The OIROI (Operating Income Return on Investment) uses what elements on the income statement?
Correct Answer: - EBIT, Total Assets
Why would a company be interested in the TAT (Total Asset Turnover) ratio?
Correct Answer: - How efficient assets are at producing sales
Which of the following gives the largest effective rate (APY-annual percentage yield)?
Correct Answer: - 18.6% compounded daily
What does the beta coefficient represent?
Correct Answer: - It is a statistically-derived measure of volatility
Why is depreciation expense taken out of the net income calculation, yet added back at the end?
Correct Answer: - Because depreciation expense is tax deductible
Why is the NPV preferred over the IRR?
Correct Answer: - It measures the dollar value. It is more reliable.
, What does the degree of Financial leverage indicate?
Correct Answer: - The reliance on debt
If a company has a high degree of financial leverage, what does that tell us about the firm’s risk profile?
Correct Answer: - Higher profits to shareholders
What is the cash cycle?
Correct Answer: - The amount of time to regenerate cash
Why is float important to understand?
Correct Answer: - The time cash expenditures
What should a company do to manage its working capital?
Correct Answer: - Collect quickly and pay slowly
What would be a source of information to determine replacement cost?
Correct Answer: - Building Appraisal
What does Sarbanes-Oxley Act require companies to do?
Have internal control audits
FINRA (Financial Industry Regulatory Authority) does the following: Correct Answer: - Prosecutes naughty
stockbrokers
If a product is made 100% domestically, what can affect its domestic market?
Correct Answer: - International competition
If a company makes its product in a foreign country where labor costs are much lower, what happens?
Correct Answer: - Profits go up and domestic employment decreases
If the value of a dollar increases, the price of imports: Correct Answer: - Decreases
Why would a farmer buy a hedge when he signs a contract to sell produce overseas?
To reduce currency risk
Suppose the inventory turnover of a company is higher than the industry. Based on this observation, which
of the following is most likely?
Correct Answer: - The firm has too little inventory resulting in lost sales or stock-outs
If the company wishes to obtain a bank loan, will it want to have higher current ratio or a lower current
ratio?
Correct Answer: - Higher
If an investor knows the idiosyncratic risk, the investor knows the: Correct Answer: - Beta coefficient
Why would we reject a project based on the NPV (Net present value)?
Correct Answer: - The NPV is a negative number
Why would we reject a project based on the IRR (internal rate of return)?
Correct Answer: - The discount rate is higher than the IRR
Company A wishes to keep 20% of its assets as cash. Company B keeps its cash balance at 5% of assets.
Which of the following statements apply?
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