Financial Management Quiz

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Questions and Answers

What does the value of a company's shares represent?

The company's total liabilities

The company's total assets

The company's total revenue

The company's market price (correct)

Which of the following is considered superior to profit maximization?

Cost minimization

Asset maximization

Revenue maximization

Wealth maximization (correct)

What is the main aim of a financial statement?

To reflect the operational position of the firm during a particular period

To determine the company's total assets and liabilities

To ascertain the strength and weakness of the firm

To provide information and understand the financial aspects of the firm (correct)

Which of the following is a type of financial statement?

All of the above Signup and view all the answers

Which of the following is a user of financial statements?

All of the above Signup and view all the answers

What does the Statement of Financial Position (Balance Sheet) help to ascertain?

The total assets, liabilities, and capital of the firm Signup and view all the answers

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 Signup and view all the answers

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 Signup and view all the answers

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 Signup and view all the answers

What is the main purpose of horizontal analysis (dynamic analysis)?

To compare financial statements with several years and make decisions Signup and view all the answers

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 Signup and view all the answers

Which statement does NOT provide information about the actual financial position of the company?

Statement of Changes in Financial Position Signup and view all the answers

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 Signup and view all the answers

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 Signup and view all the answers

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 Signup and view all the answers

What is the key feature that distinguishes a corporation from other business structures?

Ownership is divided into transferable shares of stocks Signup and view all the answers

What is the government agency primarily responsible for regulating private corporations in the Philippines?

The Securities and Exchange Commission (SEC) Signup and view all the answers

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) Signup and view all the answers

What is the primary purpose of comparative statement analysis?

To assess the changes in financial position and performance over time Signup and view all the answers

Which of the following statements is true about a comparative balance sheet?

It showcases assets and liabilities for the previous and current year Signup and view all the answers

What does trend analysis involve?

Computing percentages or index numbers to show relative changes in financial data Signup and view all the answers

What is a funds flow statement?

A retrospective statement that shows the sources and uses of funds Signup and view all the answers

Which of the following is not a technique of financial statement analysis mentioned in the text?

Ratio analysis Signup and view all the answers

What is the purpose of a comparative income statement?

To compare the operational results of a business over different time periods Signup and view all the answers

What is the primary purpose of a Cash Flow Statement?

To show the sources of cash inflows and uses of cash outflows Signup and view all the answers

What does Ratio Analysis help in evaluating?

Both (a) and (b) Signup and view all the answers

What does the Current Ratio measure?

The ability of a business to pay its current liabilities Signup and view all the answers

What is the formula for calculating Working Capital?

Current Assets - Current Liabilities Signup and view all the answers

What do Activity Ratios measure?

The efficiency of a business in using its assets Signup and view all the answers

What is the purpose of Ratio Analysis?

To evaluate the financial performance of a business Signup and view all the answers

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.

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Description

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.