Unlock the secrets to mastering financial analysis with our comprehensive AFA Quiz! Designed for business and management students, this quiz covers essential topics like calculating average financing costs, understanding profitability indicators, and leveraging financial strategies for maximum impa...
Circle the letter of the Answer that corresponds to the displayed Question.
1. How do you calculate the average financing cost?
a) increase the margin = raising prices, boost sales, reducing costs 2. increase rotation/turnover = sell
more, reduce assets 3. increase debt ratio = increase debt, assets over net equity increases
b) creates barrier against inflation, give rise to price level gains 2. interest cost of debt is fixed - if lower
than return on funds, difference is accumulated for benefit of own funds 3. interest is a tax deductible
expense 4. rising interest rates
c) total financial cost/ average financial balance
d) accompanied by indicators that make decisions - allows to relate what's generated through income
statement with what is needed to develop business activity (assets/own capital) - evaluate convenience
of maintaining an investment in company
Correct Answer: total financial cost/ average financial balance
Explanation: The average financing cost is calculated by dividing the total financial cost by the
average financial balance. This measure helps determine the overall cost of financing relative to the
financial resources employed.
2. What are other profitability indicators?
a) creates barrier against inflation, give rise to price level gains 2. interest cost of debt is fixed - if lower
than return on funds, difference is accumulated for benefit of own funds 3. interest is a tax deductible
expense 4. rising interest rates
b) to measure the viability of the company in the long-term - tools for projection of results = serve for
better planning, budgeting & control
c) effect of profitability when debt is used in the structure - to analyse the relationship between debt
and equity, & the effect of financial expenses on results - positive = increase debt = increase
profitability = greater value for shareholders
d) excess debt = can't pay = greater risk = only advised to increase debt if indebtedness is acceptable to
allow the company to maintain its solvency
Correct Answer: to measure the viability of the company in the long-term - tools for projection of
results = serve for better planning, budgeting & control
Explanation: Other profitability indicators help assess the long-term viability of the company and aid
in planning, budgeting, and controlling financial performance.
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