30 Questions
What does the value of a company's shares represent?
The company's market price
Which of the following is considered superior to profit maximization?
Wealth maximization
What is the main aim of a financial statement?
To provide information and understand the financial aspects of the firm
Which of the following is a type of financial statement?
All of the above
Which of the following is a user of financial statements?
All of the above
What does the Statement of Financial Position (Balance Sheet) help to ascertain?
The total assets, liabilities, and capital of the firm
What is the main purpose of the Statement of Changes in Owner's Equity?
To provide information about the changes or position of owner's equity in the company
What is the main purpose of the Statement of Changes in Financial Position?
To help understand the changes in financial position from one period to another
What is the difference between external analysis and internal analysis?
External analysis is done by outsiders while internal analysis is done by the company itself
What is the main purpose of horizontal analysis (dynamic analysis)?
To compare financial statements with several years and make decisions
What is the main purpose of vertical analysis (static analysis)?
To measure the quantities relationship of the various items in the financial statement on a particular period
Which statement does NOT provide information about the actual financial position of the company?
Statement of Changes in Financial Position
What is the key characteristic of a general partnership?
Each partner has an equal right to participate in the management and control of the business
What is the key difference between a general partner and a limited partner in a limited partnership?
General partners have unlimited liability, limited partners have limited liability
What is the primary purpose of an LLP (Limited Liability Partnership) structure?
To protect each partner's personal assets and each partner from debts or liability incurred by the other partners
What is the key feature that distinguishes a corporation from other business structures?
Ownership is divided into transferable shares of stocks
What is the government agency primarily responsible for regulating private corporations in the Philippines?
The Securities and Exchange Commission (SEC)
What is the key requirement for a corporation to begin its existence in the Philippines?
The approval of the Articles of Incorporation by the Securities and Exchange Commission (SEC)
What is the primary purpose of comparative statement analysis?
To assess the changes in financial position and performance over time
Which of the following statements is true about a comparative balance sheet?
It showcases assets and liabilities for the previous and current year
What does trend analysis involve?
Computing percentages or index numbers to show relative changes in financial data
What is a funds flow statement?
A retrospective statement that shows the sources and uses of funds
Which of the following is not a technique of financial statement analysis mentioned in the text?
Ratio analysis
What is the purpose of a comparative income statement?
To compare the operational results of a business over different time periods
What is the primary purpose of a Cash Flow Statement?
To show the sources of cash inflows and uses of cash outflows
What does Ratio Analysis help in evaluating?
Both (a) and (b)
What does the Current Ratio measure?
The ability of a business to pay its current liabilities
What is the formula for calculating Working Capital?
Current Assets - Current Liabilities
What do Activity Ratios measure?
The efficiency of a business in using its assets
What is the purpose of Ratio Analysis?
To evaluate the financial performance of a business
Study Notes
Financial Management Process
- Financial management involves financial analysis, financial decision, financial planning, and financial control.
Financial Statement Analysis
- Financial statements measure the financial performance of a firm.
- Financial statement users include managers, investors, shareholders, creditors, and the government.
Types of Financial Statements
- Income Statement (Profit and Loss Account): reflects the operational position of a firm during a specific period.
- Statement of Financial Position (Balance Sheet): shows the total assets, liabilities, and capital of a firm.
- Statement of Changes in Owner's Equity (Statement of Retained Earnings): provides information about changes in owner's equity.
- Statement of Changes in Financial Position: helps understand changes in financial position from one period to another.
Types of Financial Statement Analysis
- External Analysis: conducted by outsiders, such as investors and creditors.
- Internal Analysis: conducted by the company itself to understand operational performances.
Techniques of Financial Statement Analysis
- Horizontal Analysis (Dynamic Analysis): compares financial statements over several years.
- Vertical Analysis (Static Analysis): measures the quantitative relationship between items in a financial statement.
- Comparative Statement Analysis: analyzes financial statements at different periods of time.
- Trend Analysis: computes trends of series of information in a financial statement.
- Funds Flow Statement: indicates the sources and application of funds.
- Cash Flow Statement: shows the sources of cash inflow and uses of cash outflow.
- Ratio Analysis: uses ratios to evaluate financial performance.
Ratio Analysis
- Liquidity Ratio (Short-Term Ratio): measures a firm's ability to pay current obligations.
- Formula: Current Assets / Current Liabilities
- Working Capital: day-to-day operation/expenses of the business.
- Formula: Current Assets - Current Liabilities
- Activity Ratio (Turnover Ratio or Asset Management Ratio): measures how efficiently a firm employs its capital or assets.
Test your knowledge on financial management process, financial analysis, financial decision making, and financial planning. Understand the importance of wealth maximization over profit maximization in the context of market price and time value of money.
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