BEC > B2 - Financial Management > Flashcards

B2 - Financial Management Flashcards

(80 cards)

Study These Flashcards
1
Q

Debt Financing

A

Use of short term and long term debt in capital structure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

The following are ______ debt
commercial paper, line of credit

A

Short term debt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

The following are _______ debt
debentures, bonds, finance leases

A

Long term debt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Commercial paper

A

Unsecured, ST debt instrument issued by a corp that matures in 270 days or less and must be used to finance current assets such as AR, inventory or meet ST obligations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Subordinated Debentures

A

Bond issue that is unsecured and ranks behind senior creditors in the event of an issuer liquidation; command higher interest rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Income Bonds

A

Securities that pay interest only upon achievement of traget incme levels

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Junk bonds

A

High default risk and high return

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Mortgage bonds

A

Loan that is secured by residential or commercial real property; trustees act on behalf of bondholders to foreclose on mortgage assets in the event of default

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What kind of lease?
Lease expense represents interest expense and amortization of the ROU asset will be recorded on IS

A

Operating Lease

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What kind of lease?
Interest expense and amortization expense are accounted for separately on the income statement

A

Finance lease

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Lease accounting

A

ROU asset and liability on balance sheet; ROU asset is amortized and the lease liability is paid down over the life of the asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

When do you not have to record an ROU Asset or lease liability?

A

short term

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

O in OWNES

A

Ownership transfer at the end of the lease

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

W in OWNES

A

Written purchase option that the lessee is reasonably certain to exervice

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

N in OWNES

A

Net present value of all lease payments and guaranteed residual value is equal or substantially exceeds the underlying asset FV

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

E in OWNES

A

Economic life of the underlying asset is primarily encompassed within the term of the lease

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

S in OWNES

A

Specialized asset such that it will not have an expected alternative use

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What kind of financing
Variable cost with no maturity risk
high creditworthiness

A

Equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What kind of financing
Lower ROE

A

Equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Equity financing

A

rights of shareholders to a firm’s assets in bankruptcy are less than that of both secured and unsecured bondholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Preferred stock

A

Require a fixed dividend that is similar to coupon payments made on debt instruments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What type of equity
Flexibility N
EPS Dilution N
Increase Financial Risk Y
Tax deductibility Y
Security issuance costs Low
investor return Fixed

A

Debt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What type of equity
Flexibility Y
EPS Dilution Y
Increase Financial Risk N
Tax deductibility N
Security issuance costs High
investor return Variable

A

Equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Cost of capital < ROIC (return on invested capital)

A

+NPV; increased value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
WACC: Interest rate
Use after tax rate
26
What does a higher working capital mean?
Less risk, lower ROA, more cash & mkt securities
27
What does a lower working capital mean?
More risk, higher ROA, less cash & mkt securities
28
What is the goal of working capital management?
Shareholder wealth and maximization
29
What does a decline in current ratio imply?
Increased risk - reduced ability to generate cash
30
What does an increase in current ratio imply?
Decreased risk - increased ability to pay off current liabilities
31
T/F Current ratio can be used to measure business health?
F Ex) bookstore may have a high CA relative to CL, but be otherwise unhealthy because inventory isn't being sold to generate cash
32
Cash conversion cycle
Days in inventory + Days sales in AR - Days payable outstanding
33
What does the cash conversion cycle tell us?
Length of time from the date of the initial expenditure for production to the date cash is collected from the customers offset by the length of time it takes to pay vendors
34
Days in inventory
Ending inventory/(COGS)/365
35
Days sales in AR
Ending AR/(Net Sales/365)
36
Days of payables outstanding
Ending AP/(COGS/365)
37
Working capital turnover
Sales/Avg working capital
38
In a period of rising prices, which inventory valuation factor would result in: Higher COGS
LIFO
39
In a period of rising prices, which inventory valuation would result in: Lower EI
LIFO
40
In a period of rising prices, which inventory valuation would result in: Higher EI
FIFO
41
In a period of rising prices, which inventory valuation would result in: Lower COGS
FIFO
42
In a period of falling prices, which inventory valuation would result in: Lower EI
FIFO
43
In a period of falling prices, which inventory valuation would result in: Higher COGS
FIFO
44
In a period of falling prices, which inventory valuation would result in: Lower COGS
LIFO
45
In a period of falling prices, which inventory valuation would result in: Higher EI
LIFO
46
Reorder point formula
Safety stock + (Lead time * Sales during lead time)
47
Safety stock
Cushion in case demand exceeds forecast
48
Reorder point
Inventory level a company should reorder or manufacture additional inventory
49
Which inventory valuation using Lower cost or market?
LIFO
50
Which inventory valuation uses NRV
FIFO/WA
51
Lower of cost or market
median value of the replacement cost, market ceiling, and market floor
52
Market floor
NRV - Profit
53
Economic order quantity
Sqrt(2SO/C)
54
APR of quick payment discount
360/(Pay Period-Discount Period) X Discount %/100%-Discount%
55
T/F Short term financing has higher rates?
F
56
T/F long term financing has higher rates?
T
57
When the value of inventory falls below original cost, the inventory must be restated to the _________
Lower of market value or NRV
58
Market value
Median value of the item's replacement cost
59
Market ceiling
NRV
60
NRV
Net selling price less costs to complete and dispose
61
Periodic inventory system
Inventory quantities are determined by physical counts performed at least annually
62
Perpetual
Inventory balance is updated after each purchase or sale
63
Motives for holding cash: Transaction
Company holds cash to make necessary payments
64
Motives for holding cash: Speculative
Cash may be needed to take advantage of temporary opportunities
65
Motives for holding cash: Precautionary
Having enough cash on hand to meet unexpected needs
66
When maintaining high cash levels, ROA..
Declines
67
How does reducing operating cycle affect cash
Increases - sell and collect quickly
68
Letter of credit
external credit enhancement used by a company issuing otherwise unsecured debt to enhance its credit
69
Line of credit
Bank loan
70
Advantages of ST Financing
Increase profitability and decreased financing costs
71
Advantages of LT Financing
Decreased interest rate risk and increased capital availability
72
Disadvantages of ST Financing
73
What does operating leverage measure
how sensitive a company's operating income is to changes in sales
74
How do you calculate operating leverage
% change EBIT/% change in sales
75
What does a high operating leverage mean
small changes in sales cause a large change in income; higher fixed to variable costs
76
what does financial leverage measure
how sensitive a company's EPS is to changes n operating income
77
How do you calculate financial leverage
% change EPS/% change in EBIT
78
what does a high financial leverage means
small changes in EBIT cause large change in EPS; higher fixed financing costs (interest) to variable
79
What are the ways to calculate ROI?
Profit margin X investment turnover Operating income/ Total investment OR average assets
80
BEC
flashcards
Decks in class (9)
# Cards
Brainscape helps you reach your goals faster, through stronger study habits.
© 2026 Bold Learning Solutions. Terms and Conditions