Quiz to Test Learning from the Ass

QUIZ TO TEST LEARNING FROM THE ASS

1. The key objective in financial management is to increase the:

(a) liquidity of the business

(b) amount of outside finance

(d) bonus of the CEO

2. Effective financial management is indicated by the:

(a) overall health of the company

(b) weight of the financial controller

(d) high cash balance

3. For a "quoted" company, the key objective of financial management must always be to increase:

(a) cash flow

(b) return on equity

(d) SVA

4. Lack of creativity in financial management normally results from management's:

(a) attitude

(b) lack of skills

(d) lack of knowledge

5. The financial manager deals with risk by:

(a) avoiding it

(b) providing for it at the level required by the chief executive

(d) ignoring it

6. Control of working capital is the responsibility of the:

(a) accountant

(b) trade unions

(d) finance manager

7. Critical profit making factor of a business are important in financial management because they affect the:

(a) sources of finance

(b) morale of the accountants

(d) key financial policies

8. The critical skills of financial management are mainly:

(a) accounting and pessimism

(b) timing, relationships and creativity

(d) forecasting and astrology

9. The horizon of a CAPITAL INVESTMENT ANALYSIS project is normally:

(a) the economic life of the project

(b) the technical life of the project

(d) the tax life of the major asset

10. New investment in ... is usually very poorly controlled by management:

(a) working capital

(b) fixed assets

(d) subsidiaries

11. Creative Accounting:

(a) a method of accounting used in the advertising industry

(b) a description given by chartered accountants to accounts prepared by anybody else

(d) an American expression for manipulating figures

12. To maintain credit from suppliers, a liquidity crisis:

(a) pay on delivery

(b) pay a little regularly to key suppliers

(d) bring in the auditors, and blame them

13. Fixed assets are best financed by:

(a) long term finance

(b) equity

(d) bank loans

14. The cheapest form of finance for working capital is normally:

(a) field warehousing and theft

(b) bank overdraft

(d) suppliers when discounts lost

15. Investment in inventory is high, therefore the financial manager must:

(a) depend on the situation

(b) cut the inventory

(d) defer payables

16. Extensive leasing of assets:

(a) reduces costs

(b) is a high contingent liability

(d) makes the E:D ratio look worse

17. The equity: debt ratio:

(a) must always be at least 2 : 1

(b) depends on the attitude of the chief executive

(d) is the same as the industry average

18. When sales expand:

(a) more assets are not required with good WC management

(b) generally more assets required

(d) profits increase

19. In financial management what is more important, analysis of the past or forecasting of future cash flows:

(a) analysis of the past

(b) both equally

(d) neither

20. Factoring of receivables does not:

(a) provide immediate cash flow

(b) improve credit control

(d) always damage company image

21. By not taking discount offered by suppliers on 2/10 days nett 30 day terms the cost of money is about:

(a) 24%

(b) 36%

(d) 2%

22. Money borrowed short term until some form of long term finance is arranged is:

(a) bridging finance

(b) subordinated debt

(d) a form of debenture

23. For management purposes, given only the following options, which would you choose:

(a) profit figures three months old,

(b) profit figures of recent origin prepared under pressure of time and accuracy

(d) daily output in both physical and money terms

24. Operational cash flow is:

(a) net profit plus depreciation

(b) Earnings before interest and taxes (EBIT)

(d) EBIT less taxes and less changes in working capital and capital expenditure

25. For most companies, the health of a financial ratio is best related to:

(a) financial managers

(b) the weather

(d) industry averages

26. SVA depends mainly upon:

(a) reduced WC

(b) the weather

(d) new investment producing more than the cost of capital.

27. In financial management the cash balance is:

(a) the unnatural result of doing business

(b) the key to liquidity

(d) too low

28. Cash forecasting is designed to show the:

(a) cash balance in five years time

(b) same as the balance sheet

(d) impossibility of surviving in the modern world

29 The key overall test of liquidity is measured by the ratio of:

(a) equity to debt

(b) current assets to current liabilities

(d) stocks on cash or credit

30. Equity base of a company should be kept:

(a) as low as possible

(b) as high as possible

(d) as a cushion for creditors against loss

31. Financial statements are more reliable when they are:

(a) audited

(b) absolutely correct

(d) prepared for tax purposes

32. "Sales increase but inventory stays at about same level" . This is:

(a) true

(b) always false

(d) irrelevant to WC management

33. Cost of capital is the:

(a) cost of equity minus debt

(b) arithmetic average of cost of equity and cost of debt

(d) weighted average of cost of equity and cost of debt

34. When you are asked to examine a set of annual accounts with a view to making a valuation for acquisition purposes the first thing to do is:

(a) find out who audited the accounts, and

(b) ask yourself why does the other guy want to sell

(d) order a check on all the assets, and make a judgement on the quality of profits

35. Annual cash flow is:

(a) the decrease in bank borrowings over the year

(b) retained profits plus depreciation,

(d) a Xmas party bonus

35. EVA is achieved when:

(a) OCF is positive

(b) Cost of Capital is low

37. Balance Sheet

Liabilities & Assets

Owner's Equity

OE 10 FA 20

LTL 2 OCA 1

CL 10 Cash 1

22 22

Which statement is the most appropriate:

a) current assets are too high

b) equity is too high

c) liquidity is poor

d) fixed assets are too high

Note:

OCA = Inventories and Accounts Receivable

FA = Fixed Assets

CA = Current Assets

LTL = Long-term Liabilities

OE = Owner's Equity

DRS = Debtors (receivables)

38. Balance Sheet

Liabilities & Assets

Owner's Equity

Yr.1 Yr.2 Yr.1 Yr.2

OE 60 100 FA 40 50

LTL 20 20 Inv. 30 30

CL 20 40 Drs. 20 80

Cash 10 -

100 160 100 160

Which statement is the most appropriate:

(a) the material increase is in fixed assets

(b) there is probably poor control of debtors

(d) there is poor use of long-term funds

39. EVA is a:

a) new tax on added value

b) concept similar to cost of capital

c) measure of value created by a business

d) measure of return on equity

40. Which of the following is not a key EVA driver?

a) operating profit margin

b) working capital

c) cost od capital

d) level of inflation

41. Balance Sheet

Liabilities & Assets

Owner's Equity

Cash 2 CL 2

OCA 2 LTL 18

FA 18 OE 2

22 22

Which statement is the most appropriate:

a) current liabilities are to low

b) owners equity is too low

c) long-term liabilities are adequate

d) fixed assets are too high for the other current assets

42. Balance Sheet

Assets:

Yr.1 Yr.2

FA ` 4 18

OCA 5 5

Cash 1 1

10 24

Less:

CL (2) (4)

LTL (2) (4)

OE 6 16

Which statement is the most appropriate:

a) increase in current assets is financed by liabilities

b) increase in fixed assets is financed by liabilities

c) increase in fixed assets is financed by receivables

d) increase in fixed assets is financed by owners equity

43. Balance Sheet

Liabilities & Assets

Owner's Equity

Yr.1 Yr.2 Yr.1 Yr.2

OE 6 13 FA 4 4

LTL 2 2 OCA 5 22

CL 2 12 Cash 1 1

10 27 10 27

Profit and Loss Account

Yr.1 Yr.2

Sales 20 40

GP 10 20

NP 4 7

Which statement is the most appropriate:

a) stock and debtors increase is financed by liabilities

b) stock and debtors increase is financed by equity and liabilities

c) stock and debtors increase is due to sales expansion

d) profit margins are increasing

44. Balance Sheet ... have a care now ....!

Assets

Yr.1 Yr.2

FA 4 5

OCA 5 10

Cash 1 1

10 16

Less:

CL (2) (10)

Net assets 8 6

OE 6 6

LTL 2 -

Financing 8 6

Which statement is the most appropriate

a) sales increase led to an increase in debtors and stock

b) cash balance is too low

c) liabilities are too high in relation to sales

d) significant increase in fixed assets is financed by liabilities

45. Balance Sheet

Liabilities & Assets

Owner's Equity

OE 22 FA 10

LTL - OCA 11

CL - Cash 1

22 22

Which statement is the most appropriate:

a) current assets are too high

b) SVA is too high

c) owners equity is too high

d) fixed assets are too high

46. Balance Sheet

Liabilities & Assets

Owner's Equity

OE 10 FA 18

LTL 2 OCA 2

CL 10 Cash 2

22 22

Which statement is the most appropriate:

a) long-term liabilities are too low for the cash

b) a FOREX or a DUREX problem

c) liquidity is satisfactory

d) owners equity is too low for fixed assets

47. Balance Sheet (Careful!)

Assets Liabilities & Owners Equity

Cash 1 CL -

OCA 20 LTL 20

FA 1 OE 2

22 22

Which statement is the most appropriate:

a) liquidity is OK

b) Owners equity is too low

c) current liabilities are well managed

d) LBO is the answer

48. In the capital asset pricing model (CAPM) the Beta coefficient measures the:

a) bankruptcy risk of the company

b) dividend yield

c) relative volatility of the company share price in relation to the stock market index.

d) ratio of market value to book value

49. Balance Sheet

Liabilities & Assets

Owner's Equity

Yr.1 Yr.2 Yr.1 Yr.2

OE 6 8 FA 4 5

LTL 2 2 OCA 5 10

CL 2 8 Cash 1 3

10 18 10 18

Operating Statement

Yr.1 Yr.2

Sales 20 21

GP 10 10

NP 2 2

Which statement is the most appropriate:

a) stock and debtors are too high in relation to OE

b) stock and debtors are too high in relation to gross profit

c) margins are improving

d) stock and debtors are too high in relation to sales

50. Balance Sheet

Liabilities & Assets

Owner's Equity

Yr.1 Yr.2 Yr.1 Yr.2

OE 60 60 FA 40 180

LTL 20 140 Stock 30 20

CL 20 40 DRS 20 30

Cash 10 10

100 240 100 240

Income Statement

Yr.1 Yr.2

Sales 100 150

GP 40 60

NP 20 30

The material change between year I and II is:

a) increase in sales

b) increase in fixed assets

c) SVA

d) reduction in profit margin

51. Balance Sheet

Liabilities & Assets

Owner's Equity

Yr.1 Yr.2 Yr.1 Yr.2

OE 60 65 FA 40 50

LTL 20 20 Stock 30 100

CL 20 95 DRS 20 20

Cash 10 10

100 180 100 180

Which statement is the most appropriate:

a) increase in fixed assets is financed by equity

b) increase in SVA

c) increase in stock is mainly financed by liabilities

d) increase in sales is mainly financed by the workers

52. Which of the following is never good security for a banker:

(a) bills receivable

(b) inventory

(d) accounts payable

53. In responding to a loan request, the bank's first attention is whether the:

(a) client is an old one or a new one

(b) amount is too high

(d) purpose is legal

54. In practice the main security for the bank loan is the:

(a) cash in hand

(b) face of the client

(d) size of the safe

55. Banks do not like to lend to companies making losses because;

(a) they are inefficient

(b) its bad for their image

(d) they may soon have higher losses

56. The best reason for not using a bank to finance the purchase of a fixed asset is because:

(a) it is not ethical

(b) the interest rate is too high

(d) the bank will ask repayment "on demand"

57. Liquidation values are:

(a) dependent upon the way assets are sold

(b) more than book values

(d) the same as book values

58. "If the company cannot repay the loan on demand then the bank has practical alternative but to liquidate the company". This statement is:

(a) always true

(b) generally true

(d) false

59. A "company doctor" is a man who:

(a) gives medical treatment to staff