FI 302 Final Exam Questions and Answers.
Benchmarking - Correct Answer -good starting point to detect trends in a firms perforce
and make quick comparisons of key financial statement values with competitors on a
relative basis
-
Trend Analysis: - Correct Answer Common method of benchmarking, comparing a
firm’s current performance against that of its own performance over a 3-5 year period
Financial Ratios: - Correct Answer relationships between different accounts from
financial statements- usually income statement and the balance sheet- that serve as
performance indicators
Liquidity Ratio: - Correct Answer Can the company meet its obligations over the short
term?
Solvency Ratio (financial leverage ratio): - Correct Answer Can the company meet
obligations over the long term?
Asset management ratio: - Correct Answer How efficiently is the company managing its
assets to generate sales?
Profitability ratio: - Correct Answer How well has the company performed overall?
Market value ratio: - Correct Answer how does the market (investors) view the company
financial prospects?
Du Pont analysis: - Correct Answer Involves a breakdown of the return on equity into its
three components: profit margin (operating efficiency), turnover (asset management
efficiency), and leverage (financial)
5 sources of capital can generally be used to start and grow a business: - Correct
Answer 1. Personal funds
2. Borrowed funds from family and friends
3. Commercial bank loans
4. Borrowed funds through business start-up programs like the US Small Business
Admin (SBA)
5. Angel financing or venture capital
Commercial Bank Loans: - Correct Answer -Constitute the first source that people often
seek after they run out of money friends and in-laws to ask
-Banks tend tone very conservative lenders often requiring substantial collateral, income
history and evidence of stability
-Start-ups are rarely directly funded by commercial banks
, Small Business Administration Loan: - Correct Answer Available to qualified small
business applicants via a variety of loan programs, most common 7(a) Loan Guaranty
Program
-7(a) administers business loans to individuals or businesses that might not be eligible
for a loan through the normal lending agencies
-Loan Proceeds can be used for working capital and fixed assets, with repayment
schedules extending up to 25 years
-These loans are delivered through commercial lenders and guaranteed by the SBA
-The interest rates tend to be quite competitive but his major advantage of this program
accrues to the banks since the loans are backed by SBA
Angel Investing vs. Venture capital: - Correct Answer Sought by entrepreneurs and
businesses that would not qualify for commercial bank or SBA backed financing
-Angel inventors are wealthy individuals and groups that are interested in providing
initial funding for high-risk ideas. Typically short loan investment horizons (less than 10
years) and upside limits of about $2 million
-Venture capitalist firms or funds are also willing to fund high-risk projects, but have
longer time horizons and higher funding limits. They generally provide the funding in
stages
Factors to look for when picking a financier or group of financiers include: - Correct
Answer Financial strength
Contacts
Exit Strategy
Borrowing for a stable and mature business: commercial bank loans- - Correct Answer
Commercial banks provide much of the short-term financing required for the operating
needs of a business via: straight loans, discount loans, and lines of credit with or without
compensating balances
Straight loans: - Correct Answer represent the simplest of all types of loans
Offered with a quoted APR and pre-set payment amounts and intervals
Discount Loans: - Correct Answer Offered to firms with the interest amount being
already subtracted at the start
The difference between the amount the firms can use and the amount that has to be
paid back at the end is the banks interest or discount earned
The loan amount is the amount due at maturity
Line of Credit: - Correct Answer pre-approved borrowing amount that works much like a
credit card
-the company can borrow money at a present rate from bank at any time without
seeking additional approval of the loan each time it needs funds.
Benchmarking - Correct Answer -good starting point to detect trends in a firms perforce
and make quick comparisons of key financial statement values with competitors on a
relative basis
-
Trend Analysis: - Correct Answer Common method of benchmarking, comparing a
firm’s current performance against that of its own performance over a 3-5 year period
Financial Ratios: - Correct Answer relationships between different accounts from
financial statements- usually income statement and the balance sheet- that serve as
performance indicators
Liquidity Ratio: - Correct Answer Can the company meet its obligations over the short
term?
Solvency Ratio (financial leverage ratio): - Correct Answer Can the company meet
obligations over the long term?
Asset management ratio: - Correct Answer How efficiently is the company managing its
assets to generate sales?
Profitability ratio: - Correct Answer How well has the company performed overall?
Market value ratio: - Correct Answer how does the market (investors) view the company
financial prospects?
Du Pont analysis: - Correct Answer Involves a breakdown of the return on equity into its
three components: profit margin (operating efficiency), turnover (asset management
efficiency), and leverage (financial)
5 sources of capital can generally be used to start and grow a business: - Correct
Answer 1. Personal funds
2. Borrowed funds from family and friends
3. Commercial bank loans
4. Borrowed funds through business start-up programs like the US Small Business
Admin (SBA)
5. Angel financing or venture capital
Commercial Bank Loans: - Correct Answer -Constitute the first source that people often
seek after they run out of money friends and in-laws to ask
-Banks tend tone very conservative lenders often requiring substantial collateral, income
history and evidence of stability
-Start-ups are rarely directly funded by commercial banks
, Small Business Administration Loan: - Correct Answer Available to qualified small
business applicants via a variety of loan programs, most common 7(a) Loan Guaranty
Program
-7(a) administers business loans to individuals or businesses that might not be eligible
for a loan through the normal lending agencies
-Loan Proceeds can be used for working capital and fixed assets, with repayment
schedules extending up to 25 years
-These loans are delivered through commercial lenders and guaranteed by the SBA
-The interest rates tend to be quite competitive but his major advantage of this program
accrues to the banks since the loans are backed by SBA
Angel Investing vs. Venture capital: - Correct Answer Sought by entrepreneurs and
businesses that would not qualify for commercial bank or SBA backed financing
-Angel inventors are wealthy individuals and groups that are interested in providing
initial funding for high-risk ideas. Typically short loan investment horizons (less than 10
years) and upside limits of about $2 million
-Venture capitalist firms or funds are also willing to fund high-risk projects, but have
longer time horizons and higher funding limits. They generally provide the funding in
stages
Factors to look for when picking a financier or group of financiers include: - Correct
Answer Financial strength
Contacts
Exit Strategy
Borrowing for a stable and mature business: commercial bank loans- - Correct Answer
Commercial banks provide much of the short-term financing required for the operating
needs of a business via: straight loans, discount loans, and lines of credit with or without
compensating balances
Straight loans: - Correct Answer represent the simplest of all types of loans
Offered with a quoted APR and pre-set payment amounts and intervals
Discount Loans: - Correct Answer Offered to firms with the interest amount being
already subtracted at the start
The difference between the amount the firms can use and the amount that has to be
paid back at the end is the banks interest or discount earned
The loan amount is the amount due at maturity
Line of Credit: - Correct Answer pre-approved borrowing amount that works much like a
credit card
-the company can borrow money at a present rate from bank at any time without
seeking additional approval of the loan each time it needs funds.
