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Questions and Answers
Which of the following questions are addressed by financial managers? (Select all that apply)
Which one of the following best states the primary goal of financial management?
Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?
With which of the following statements would most people in business agree?
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Which of the following statements is CORRECT?
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Study Notes
Financial Management: Key Roles and Goals
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Financial managers are responsible for making crucial decisions regarding a company's finances, including:
- Determining the appropriate credit terms for customers
- Deciding whether to take on additional debt
- Evaluating potential investments in new equipment
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The primary objective of financial management is to maximize the current value per share for the company's shareholders.
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A company is considered to be adhering to financial management goals when it implements strategies that lead to an increase in the market value per share.
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Ethical considerations play a significant role in business decisions as unethical behavior can have negative repercussions for individuals, companies, and society at large.
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Potential conflicts of interest can arise between managers and shareholders, as managers may prioritize their personal interests over the shareholders' interests.
Financial Management: Key Ratios
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The current ratio is a measure of a company's ability to meet its short-term obligations. It is calculated by dividing current assets by current liabilities.
- A current ratio of 2.00 means that a company has P2.00 in current assets for every P1.00 in current liabilities.
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The quick ratio measures a company's ability to meet its short-term obligations using its most liquid assets. It is calculated by dividing quick assets (current assets minus inventory) by current liabilities.
- A quick ratio of 1.00 means that a company has P1.00 in quick assets for every P1.00 in current liabilities.
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The inventory turnover ratio indicates how efficiently a company is managing its inventory. It is calculated by dividing cost of goods sold by average inventory.
- An inventory turnover ratio of 5.00 means that a company sells its entire inventory five times per year.
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The days sales outstanding (DSO) measures the average number of days it takes a company to collect its receivables. It is calculated by dividing average accounts receivable by average daily sales.
- A DSO of 30 days means that it takes a company 30 days on average to collect its receivables.
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The total asset turnover ratio measures how efficiently a company is using its assets to generate sales. It is calculated by dividing sales by average total assets.
- A total asset turnover ratio of 1.00 means that a company generates P1.00 in sales for every P1.00 in assets.
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The profit margin measures how much profit a company makes for every P1.00 in sales. It is calculated by dividing net income by sales.
- A profit margin of 10% means that a company makes a profit of P0.10 for every P1.00 in sales.
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The return on assets (ROA) measures how efficiently a company is using its assets to generate profits. It is calculated by dividing net income by average total assets.
- A ROA of 10% means that a company generates a profit of P0.10 for every P1.00 in assets.
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The return on equity (ROE) measures how efficiently a company is using its equity to generate profits. It is calculated by dividing net income by average shareholders' equity.
- A ROE of 15% means that a company generates a profit of P0.15 for every P1.00 in equity.
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Description
This quiz covers the key roles and goals of financial management, focusing on decision-making regarding company finances, credit terms, debt management, and investment evaluation. Learn about maximizing shareholder value and the importance of ethical considerations in financial practices.