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MBA6040 MANAGERIAL FINANCE EXAM
PREP WITH SOLUTIONS
Ratios that help determine the efficiency with which a company manages its day-to-day
tasks and assets are called - asset management ratios
ratios that help determine whether a company can access its cash and pay its short
term obligations - liquidity ratios
ratios that help assess a company's ability to service the interest and repayment
obligations on its long-term debt and the degree to which it uses borrowed versus
invested financial capital - capital management ratios
ratios that examine the market value of a company's share price, its profit and cash
dividends, and the book value of the firm's assets and relate them to the other data
items to determine the how the firm is perceived - market value
ratios help measure a company's ability to generate income and profits based on its
invested capital - profitability
what are the main purposes of ratio analysis - compare with similar companies within
the industry in the market
with the benchmark
with its performance in previous years
In addition to calculating ratios what else can be done - make observations and identify
trends that are suggested by the ratio analysis
identify the factors that drive the trends in the ratios
hide the bad ratios and highlight the good ratios
current ratio - current assets/current liabilities
quick ratio - (Current Assets - Inventory) / Current Liabilities
lower current ratio means - less ability to finance short term liabilities
if a quick ratio is less then 1 - that means the company does not have enough assets,
excluding its inventory, to meet its short term obligations
the quick ratio does not take into account the value of - inventory
, Inventory Turnover - Sales/Inventory
days of sales outstanding - Receivables/(Annual Sales/365)
low day of sales outstanding means - company is efficient
companies that function without the use of borrowed money are said to have no
leverage or are called - unleveraged companies
unleveraged companies are financed by - equity alone
unleveraged firms are less risky but they might also - lose out on opportunities
interest on debt is a - tax deductible expense
interest expense is - deducted from the company's pre-tax earnings
sales/ total assets - total asset turnover
debt ratio - Total Debt/Total Assets
EBIT - earnings before interest and taxes
EBIT equation - sales - total operating costs
interest paid equation - interest rate times debt outstanding
TIE ratio - EBIT/Interest Charges
Operating margin - EBIT/Sales
Profit margin - net income/net sales
return on total assets - Net Income/Total Assets
Return on Common Equity - Net Income/Common Equity
BEP - EBIT/Total Assets
profit margin tells you - approximately how much earnings a company generated for
each dollar of sales
EPS - net income/shares outstanding
PE ratio - price per share/earnings per share
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