FIN 320F Unit 11, 12 & 13 Working Words and Application Problems Graded A+
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Course
FIN 320F Unit 11, 12 & 13
Institution
FIN 320F Unit 11, 12 & 13
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...
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?
3
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