FIN2601 - Chapter 3) Introduction
LATEST 2024 GRADED A+
With increased debt comes greater risk, as well as higher potential reward. Therefore,
the greater the financial ___________, the greater the potential risk and reward.
(answer)leverage
Financial ________________ is the magnification of risk and return through the use of
fixed-cost financing, such as debt and preference share capital. The more fixed debt a
firm uses, the greater will be its expected risk and return. (answer)leverage
Which ratio measures the proportion of total assets financed by the firms creditors?
(answer)Debt ratio
Which ratio is: Total liabilities/Total assets (answer)Debt ratio
Assets = 300,000 Liabilities = 180,000 What is owners equity? (answer)120,000
Owners Equity = 50,000 Liabilities = 180,000 What is the Total Assets?
(answer)230,000
What does EBIT stand for? (answer)Earnings before Interest and Tax
What does FLM stand for? (answer)Financial Leverage Multiplier
What does ROA stand for? (answer)Return on Assets
What does ROE stand for? (answer)Return on Equity
When you see the word margin in a ratio, what is always the denominator?
(answer)Sales
What ratio is this: Assets/Equity (answer)Financial Leverage Multiplier
Sales - CoS = (answer)Gross profit Margin
What does EPS stand for? (answer)Earnings Per Share
Measures the percentage of each sales rand remaining after all costs and expenses,
including (interest, taxes and preference share dividends) have been deducted. What
does this describe? (answer)Net Profit Margin (NPM)
Profit for the year - Preference share dividend/ sales = (answer)Net Profit Margin (NPM)
LATEST 2024 GRADED A+
With increased debt comes greater risk, as well as higher potential reward. Therefore,
the greater the financial ___________, the greater the potential risk and reward.
(answer)leverage
Financial ________________ is the magnification of risk and return through the use of
fixed-cost financing, such as debt and preference share capital. The more fixed debt a
firm uses, the greater will be its expected risk and return. (answer)leverage
Which ratio measures the proportion of total assets financed by the firms creditors?
(answer)Debt ratio
Which ratio is: Total liabilities/Total assets (answer)Debt ratio
Assets = 300,000 Liabilities = 180,000 What is owners equity? (answer)120,000
Owners Equity = 50,000 Liabilities = 180,000 What is the Total Assets?
(answer)230,000
What does EBIT stand for? (answer)Earnings before Interest and Tax
What does FLM stand for? (answer)Financial Leverage Multiplier
What does ROA stand for? (answer)Return on Assets
What does ROE stand for? (answer)Return on Equity
When you see the word margin in a ratio, what is always the denominator?
(answer)Sales
What ratio is this: Assets/Equity (answer)Financial Leverage Multiplier
Sales - CoS = (answer)Gross profit Margin
What does EPS stand for? (answer)Earnings Per Share
Measures the percentage of each sales rand remaining after all costs and expenses,
including (interest, taxes and preference share dividends) have been deducted. What
does this describe? (answer)Net Profit Margin (NPM)
Profit for the year - Preference share dividend/ sales = (answer)Net Profit Margin (NPM)
