Midterm Exam Study Notes - Financial Decisions
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Questions and Answers

What is included in Operating Activities within the statement of cash flow?

  • Revenue and expenses (correct)
  • Dividends received from investments
  • Changes in non-current assets
  • Debt and capital transactions

Investing Activities in the statement of cash flow focus on current liabilities and equity transactions.

False (B)

What are the three main types of activities reflected in a cash flow statement?

Operating, Investing, Financing

The cash flow statement uses information from the income statement and the __________.

<p>balance sheet</p> Signup and view all the answers

When calculating cash flow from operating activities, which of the following accounts should be ignored?

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

Match the activity type to its description:

<p>Operating Activities = Relates to revenue and expenses Investing Activities = Involves non-current assets Financing Activities = Includes debt and equity transactions</p> Signup and view all the answers

An increase in accounts receivable is added when calculating net cash flow from operating activities.

<p>False (B)</p> Signup and view all the answers

What should be done if a gain is realized from the sale of an asset in cash flow calculations?

<p>Subtract the gain</p> Signup and view all the answers

Which of the following is a cash flow from financing activities?

<p>Payment of long-term debt (C)</p> Signup and view all the answers

Accelerating cash receipts can improve cash availability.

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

What are the two main considerations when investing excess cash?

<p>Risk and Return</p> Signup and view all the answers

The cash flow statement is typically divided into three categories: Operating Activities, __________, and Financing Activities.

<p>Investing Activities</p> Signup and view all the answers

Match the cash management strategies with their effects:

<p>Sell marketable securities = Increase cash availability Delay payment of suppliers = Preserve cash for operations Postpone dividend payments = Retain profits Borrow on short-term basis = Meet immediate cash needs</p> Signup and view all the answers

Which of the following is NOT a strategy to improve cash availability?

<p>Invest in long-term bonds (A)</p> Signup and view all the answers

Selling equipment contributes negatively to cash flow from investing activities.

<p>False (B)</p> Signup and view all the answers

Name one factor to consider regarding liquidity when investing excess cash.

<p>The ability to convert the investment to cash quickly</p> Signup and view all the answers

What is included in Estimated Cash Receipts?

<p>Credit Card Sales from this month (B)</p> Signup and view all the answers

Estimated Cash Disbursements include only the cost of sales.

<p>False (B)</p> Signup and view all the answers

What is the formula used to calculate the Final Estimated Cash?

<p>Preliminary Estimated Cash + Working Capital Loan - Interest Repayment</p> Signup and view all the answers

Total cash receipts are calculated as the sum of cash sales, credit card sales, and __________.

<p>other revenue</p> Signup and view all the answers

Match the types of cash flows to their categories:

<p>Cash Sales = Operating Activities Sale of Equipment = Investing Activities Loan Repayment = Financing Activities Cost of Labor = Operating Activities</p> Signup and view all the answers

Which of the following is NOT a component of Estimated Available Cash?

<p>Total Budgeted Sales (B)</p> Signup and view all the answers

Working Capital Loans can be taken in flexible increments based on business needs.

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

In cash flow analysis, what do you do with cash disbursements?

<p>Subtract them from cash receipts to determine net cash flow.</p> Signup and view all the answers

Preliminary Estimated Cash is calculated before accounting for __________ repayments.

<p>interest</p> Signup and view all the answers

The formula for calculating the Present Value of all Future Cash Flows is based on which components?

<p>Future Value, Rate of Return, and Time Periods (B)</p> Signup and view all the answers

Flashcards

SCF use

Management uses the Statement of Cash Flow (SCF) to assess a company's financial flexibility and decide whether to pay dividends.

SCF Components

The Statement of Cash Flow (SCF) uses information from the income statement and balance sheet to show cash location and inflows/outflows.

Operating Activities

SCF section focusing on revenue and expense transactions.

Investing Activities

SCF section covering non-current asset/investment transactions.

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Financing Activities

SCF section regarding debt and equity transactions.

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Net Cash Flow (Operating)

Net cash flow from operating activities, calculated starting from net income and adjusting for non-cash transactions like depreciation.

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Depreciation/Amortization

Non-cash expenses that increase net income but don't involve cash.

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Asset/Liability Changes

Changes in current assets (accounts receivable, inventory) and liabilities (accounts payable) are either added or subtracted to net income to arrive at net cash flow from operating activities.

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Cash Budget

A plan that estimates cash inflows and outflows for a future period, helping ensure sufficient cash availability.

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Improve Cash Availability

Strategies to increase available cash, like accelerating payments or delaying expenses.

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Investing Cash

When excess cash is used to acquire assets or investments for potential future returns.

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Investment Risk

The probability of losing the invested amount.

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Investment Return

The rate of profit or gain generated by an investment.

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Investment Liquidity

How easily an investment can be converted to cash.

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Investment Cost

Fees charged by brokers or intermediaries for managing investments.

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Investment Size

The amount of capital available for investing.

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Cash Receipts

All sources of cash coming into the business, such as cash sales, credit card payments, and other revenue.

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Cash Disbursements

All expenses and payments made by the business, including cost of goods sold, payroll, loans, and other operational costs.

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Estimated Cash Beginning

The amount of cash the business starts with at the beginning of a budget period, usually taken from the ending cash balance of the previous period.

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Estimated Available Cash

The total cash available to the business after adding all cash receipts to the beginning cash balance.

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Preliminary Estimated Cash -- Ending

The estimated cash balance remaining after deducting all cash disbursements from available cash.

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Working Capital Loan

A loan the business may take to cover any shortfalls in cash.

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Interest Repayment

The payment made on any loans taken, covering the interest accrued on the loan.

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FINAL ESTIMATED CASH

The final estimated cash balance after taking into account the effects of working capital loans and interest repayments.

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Credit Card Sales from this month

The estimated amount of credit card sales that will be received during the current month.

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Credit Card Sales from last month

The estimated amount of credit card sales that will be received from the previous month.

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Study Notes

Midterm Exam Study Notes - Making Financial Decisions

  • LU 1: Recap of CBV and Operating Results Analysis

    • Covers Balance Sheets and Income Statements
    • Discusses Cost of Sales formulas
    • Includes analysis techniques like horizontal analysis, vertical analysis, and ratio analysis
    • Explores financial leverage and operating leverage

  • LU 2: Predicting Profitability and Controlling Costs

    • Explains different cost types: fixed, variable, step, and mixed costs
    • Details the high-low method for determining mixed costs
    • Discusses multiple payment options in management
    • Introduces cost definitions like direct, indirect, and indifference points
    • Explains Cost Volume Profit (CVP) analysis
    • Lists assumptions of CVP analysis

  • LU 3: Managing Working Capital

    • Covers working capital and its significance
    • Details the operating cycle components, such as managing inventory, accounts payable, and short-term loans
    • Explains concepts like float and lockbox system
    • Discusses Integrated Cash management

  • LU 4: Managing Cash Flow

    • Provides a comprehensive guide to cash flow statements
    • Discusses net cash flows from operating, investing, and financing activities
    • Explains how to create a cash budget and its components
    • Includes DuPont analysis

  • Additional Topics (from pages 2 - 9)

    • Examines details on monthly days and leap years
    • Solves two-variable equations
    • Includes a 'Variance' calculation formula
    • Covers Ratio Analysis, including liquidity, solvency, activity, and profitability ratios. -Explores various ratio calculations, focusing on current ratio, acid-test ratio, cash flow to liabilities ratio, accounts receivable turnover, average collection period, working capital turnover, working capital, return on Equity, and financial leverage. -Highlights the role of ratios in aiding management in operations and profitability analysis. -Explores the significance of costs and cost analysis in a company context. -Covers the understanding and importance of fixed and variable costs in business operations. -Explores methods to determine mixed costs (e.g., high-low method) and their significance.

  • Other Formulas (From Page 30)

    • Includes a comprehensive compilation of formulas relevant for financial analysis.
    • Focuses on accounting rate of return, profit margins, present value, future value, payback period, net present value, average investment, average annual income, breakeven, lockbox system elements, and annual additional interest earned along with processing fee calculations.

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Making Financial Decisions Mid Term Exam 2021 PDF

Description

This quiz provides a comprehensive overview of financial decisions and operational analysis. It includes topics such as balance sheets, profitability prediction, cost types, and working capital management. Prepare effectively for your midterm exam with these targeted study notes.

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