Villanova Business Dynamics Final UPDATED Exam Questions and CORRECT Answers
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Course
Villanova Business Dynamics
Institution
Villanova Business Dynamics
Villanova Business Dynamics Final UPDATED
Exam Questions and CORRECT Answers
ACCOUNTING: purpose ** of financial ratios - CORRECT ANSWER- to track a firm's
performance over time and compare a firm's performance with the performance of other firms
Liquidity: - CORRECT ANSWER- measure firm's ab...
Villanova Business Dynamics Final UPDATED
Exam Questions and CORRECT Answers
ACCOUNTING: purpose ** of financial ratios - CORRECT ANSWER- to track a firm's
performance over time and compare a firm's performance with the performance of other firms
Liquidity: - CORRECT ANSWER- measure firm's ability to pay its bills when due
Liquidity: Current Ratio: - CORRECT ANSWER- test firm's ability to pay off liabilities due
within one year
Current Assets/Current Liabilities (> 2 is adequate)
Liquidity: Quick Ratio: - CORRECT ANSWER- more stringent test of solvency
(Current Assets - Inventory)/Current Liabilities **
Leverage: - CORRECT ANSWER- measure the degree to which a firm relies on borrowed
funds
Leverage: Debt to Equity Ratio: - CORRECT ANSWER- tests how much a firm relies on
debt (borrowing) vs. investment/retained earnings (equity)
Total Liabilities/Owners' Equity (over 100% = high reliance on debt)
Profitability: - CORRECT ANSWER- measures a firm's financial performance - using
resources to achieve profits
Basic Earnings Per Share (EPS): - CORRECT ANSWER- indicates how much return
common stockholders receive for each of their shares
Net Income/Number of Common Shares Outstanding
Return on Sales: - CORRECT ANSWER- indicates how well a firm is generating profitable
sales
Net Income/Net Sales
,Return on Equity: - CORRECT ANSWER- measures how well a firm earns for every dollar
invested collectively by all of its owners/stockholders - indirectly measures risk
Net Income/Owners' Equity
Activity: - CORRECT ANSWER- measure how effectively management is turning over
inventory - how quickly inventory is converted into sales
Types of Accounting (Cash vs. Accrual) - CORRECT ANSWER- • 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: ** - CORRECT ANSWER- CPAs (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: - CORRECT ANSWER- specialize in preparing/analyzing financial
data for use by internal managers (managerial accounting **) and outside stakeholders
(financial accounting)
The Accounting System - CORRECT ANSWER- • 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: - CORRECT ANSWER- o 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: - CORRECT ANSWER- o Profit and loss (P&L) statement over a period
of time
o Major categories: revenues & expenses
o Revenues - expenses = net income
Cash Flow Statement - CORRECT ANSWER- o 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 ** - CORRECT ANSWER- • 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 - CORRECT ANSWER- • Level of individual/personal liability
(debt)
• Taxation issues (personal/corporate - double taxation)
• Complexity of set-up and dissolution of business entity
• Ability to raise investment $
• Amount of resources, talent, etc.
• Transferability of ownership
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