Financial Management Fundamentals

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Questions and Answers

What is the primary goal of financial management?

  • Maximizing the value of the firm (correct)
  • Decreasing operational efficiency
  • Ignoring risk management
  • Minimizing employee satisfaction

Which of the following is a core function of financial management?

  • Financial planning (correct)
  • Avoiding investment decisions
  • Ignoring financial risks
  • Maximizing accounts payable

What does the income statement primarily report?

  • Cash inflows only
  • Financial performance over a period of time (correct)
  • Assets, liabilities, and equity
  • Future investment opportunities

Which ratio measures a company's ability to meet its short-term obligations?

<p>Current ratio (C)</p> Signup and view all the answers

What concept states that money available now is worth more than the same amount in the future?

<p>Time value of money (A)</p> Signup and view all the answers

What does NPV stand for in capital budgeting?

<p>Net present value (A)</p> Signup and view all the answers

What does WACC represent?

<p>Weighted average cost of capital (A)</p> Signup and view all the answers

Which of the following is a component of working capital management?

<p>Inventory management (D)</p> Signup and view all the answers

Which type of risk involves potential losses due to changes in interest rates or exchange rates?

<p>Market risk (A)</p> Signup and view all the answers

What is the term for profits reinvested in a company rather than distributed as dividends?

<p>Retained earnings (D)</p> Signup and view all the answers

Flashcards

Financial Management

Planning, organizing, controlling, and monitoring financial resources to achieve organizational goals.

Financial Planning

Developing financial strategies and budgets to guide future financial activities.

Investment Decisions

Allocating capital to projects and assets that offer the best returns.

Financing Decisions

Determining the optimal mix of debt and equity to finance a firm's operations.

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Working Capital Management

Managing current assets and liabilities to ensure smooth day-to-day operations.

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Income Statement

Reports a company’s financial performance over a period of time (revenue, expenses, and profit).

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Balance Sheet

A snapshot of a company’s assets, liabilities, and equity at a specific point in time.

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Cash Flow Statement

Summarizes the movement of cash both into and out of a company over a period of time, categorized into operating, investing, and financing activities.

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Liquidity Ratios

Measure a company's ability to meet its short-term obligations.

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Solvency Ratios

Measure a company's ability to meet its long-term obligations.

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Study Notes

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