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FIN 320F Unit 11, 12 & 13 Working Words and Application Problems Graded A+

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FIN 320F Unit 11, 12 & 13 Working Words and Application Problems Graded A+ What is "economic value added" (EVA) and how is it calculated? Economic value added (EVA) is calculated by subtracting the company's cost of capital from its net operating profit after taxes (NOPAT). It measures a com...

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  • September 10, 2024
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  • 2024/2025
  • Exam (elaborations)
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  • FIN 320F Unit 11, 12 & 13
  • FIN 320F Unit 11, 12 & 13
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FIN 320F Unit 11, 12 & 13 Working Words
and Application Problems Graded A+
What is "economic value added" (EVA) and how is it calculated?


✔✔ Economic value added (EVA) is calculated by subtracting the company's cost of capital

from its net operating profit after taxes (NOPAT). It measures a company's financial

performance and value creation.




How does "debt-to-equity ratio" impact financial risk?


✔✔ The debt-to-equity ratio compares a company's total debt to its shareholders' equity. A

higher ratio indicates greater financial leverage and risk, while a lower ratio suggests more

stability.




What is the purpose of "sensitivity analysis" in financial planning?


✔✔ Sensitivity analysis examines how changes in key assumptions or variables impact the

outcome of financial models, helping to assess potential risks and uncertainties in financial

planning.




How do "profit margins" reflect a company's operational efficiency?




1

,✔✔ Profit margins measure the percentage of revenue that remains as profit after expenses.

Higher margins indicate better operational efficiency and profitability.




What is the role of "budget variance" in financial management?


✔✔ Budget variance analyzes the difference between budgeted and actual financial performance,

helping identify areas where the company is over or under budget and informing corrective

actions.




How is "gross profit" calculated and what does it reveal about a business?


✔✔ Gross profit is calculated by subtracting the cost of goods sold (COGS) from total revenue.

It reveals how efficiently a company produces and sells its products before accounting for other

expenses.




What does "return on assets" (ROA) measure?


✔✔ Return on assets (ROA) measures a company's ability to generate profit from its assets,

calculated by dividing net income by total assets. It indicates how effectively assets are being

utilized.




What is "capital structure" and why is it important?



2

, ✔✔ Capital structure refers to the mix of debt and equity financing used by a company. It is

important for determining the overall risk and cost of capital and influencing financial strategy.




How does "scenario analysis" differ from "sensitivity analysis"?


✔✔ Scenario analysis evaluates the impact of different scenarios or situations on financial

outcomes, while sensitivity analysis focuses on how changes in individual variables affect the

results.




What is "amortization" and how does it affect financial statements?


✔✔ Amortization is the gradual reduction of an intangible asset's value or a loan’s principal over

time through periodic payments. It affects financial statements by spreading costs or expenses

over multiple periods.




What is the definition of "net present value" (NPV)?


✔✔ Net present value (NPV) is the difference between the present value of cash inflows and

outflows over a period, used to evaluate the profitability of an investment.




How is "internal rate of return" (IRR) calculated and what does it indicate?




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