WGU C214 Quick Study for PA/OA
(2025)
1. What is a potential negative consequence if a firm focuses only on profit maximization: Unethical
behavior/scandals
2. How does a private company differ from a public company: Private compa- nies are not publicly traded and
keep business within their "family"
3. Why would a country devalue their currency: To make their exports cheaper
4. What are the two types of secondary financial markets: Auction market Dealer market
5. What is an auction market (of the secondary financial market): Auction sells to highest bidder
Physical location
e.g. NYSE
6. What is a dealer market (of the secondary financial market): Multiple dealers holding an inventory of securities
and quote prices
Virtual, does not require physical location
e.g. NASDAQ
7. True or False: Efficient and well-developed financial markets enable more reliable stock prices: True
8. Explain why a company would have a net income of 100k but retained earnings only increased 20k: The
retained earnings were paid out as dividends to shareholders
9. What is retained earnings on the balance sheet: Accumulated earnings not paid out as dividends, they have
been plowed back (retained)
10.True or False: Retained earnings can be used to pay company bills: False. It is not cash on the books and
cannot be used to pay bills.
11.Why is depreciation added back to net income when calculating CFO: It is a non-cash expense
12.What are operating accounts in the balance sheet: Increase or decrease in operating asset accounts
e.g. accounts receivable and inventory
Increase of decrease in operating liability accounts
e.g. accounts payable and accrued wages
13.What happens with CFO when assets increase, cash : Cash
outflow
14.What happens with CFO when liabilities increase, cash : Cash
inflow
15.What does a statement of cash flow show an investor?: Cash flows from operating, investing, and financing
activities
1/
5
, WGU C214 Quick Study for PA/OA
(2025)
16.What does it mean if a company has a CFO of $100, CFI of $50, CFF of
$300: The company relied on external financing
17.What is the CFO indirect method?: The indirect method is a "bottom-up" approach where we start with net
income and adjust for differences between net income and CFO
18.What is "scrubbing the data" for ratio analysis: financial statements are comparable to the peer group
19.What are the steps to ratio analysis: Step 1: Basic data - identify groups and scrub data
Step 2: Differences - red flags
Step 3: Deepen analysis - evaluate competition and threats Step 4: Report cause and cure -
source of weakness and fixes
20.What are things to account for with ratio analysis: Timing differences aka season firms
Accounting differences
21.Reviewing a financial statement, how is profit margin calculated: Profit margin = net profit (net income) /
Sales (revenue)
22.What is Return on Equity (ROE): Profitability ratio ROE = Net Income /
Owner's Equity
Earnings generated for each dollar of equity invested
23.What does gross margin measure: The percent of revenue remaining after the cost of good sold
High gross margins usually mean efficient production
24.What is Return on Assets (ROA): (ROA) = Net Income / Total Assets Return on Assets = Net Income/Total
Assets, a profitability ratio that shows net earnings as a percent of all assets entrusted to management.
25.Two types of risks with ratios: External risk - economy, competition, technol- ogy
Internal risk - financial flexibility, willingness, attitude
26.Bond: What is par value: Face value of bond, usually $1,000
27.Bond: What is coupon rate: Interest rate of the bond aka coupon yield
28.What are affirmative covenants and negative covenants: Affirmative: Things a company pledges to do
Negative: Things a company pledges NOT to do
29.How is a corporate bond usually paid out: Annual or semiannual interest payments and a final principal
payment
30.If a 5 year bond has semi-annual payments, how many payments are there: 10. The number of periods is
multiplied by 2 because it pays out every 6 months instead of annually
2/
5
(2025)
1. What is a potential negative consequence if a firm focuses only on profit maximization: Unethical
behavior/scandals
2. How does a private company differ from a public company: Private compa- nies are not publicly traded and
keep business within their "family"
3. Why would a country devalue their currency: To make their exports cheaper
4. What are the two types of secondary financial markets: Auction market Dealer market
5. What is an auction market (of the secondary financial market): Auction sells to highest bidder
Physical location
e.g. NYSE
6. What is a dealer market (of the secondary financial market): Multiple dealers holding an inventory of securities
and quote prices
Virtual, does not require physical location
e.g. NASDAQ
7. True or False: Efficient and well-developed financial markets enable more reliable stock prices: True
8. Explain why a company would have a net income of 100k but retained earnings only increased 20k: The
retained earnings were paid out as dividends to shareholders
9. What is retained earnings on the balance sheet: Accumulated earnings not paid out as dividends, they have
been plowed back (retained)
10.True or False: Retained earnings can be used to pay company bills: False. It is not cash on the books and
cannot be used to pay bills.
11.Why is depreciation added back to net income when calculating CFO: It is a non-cash expense
12.What are operating accounts in the balance sheet: Increase or decrease in operating asset accounts
e.g. accounts receivable and inventory
Increase of decrease in operating liability accounts
e.g. accounts payable and accrued wages
13.What happens with CFO when assets increase, cash : Cash
outflow
14.What happens with CFO when liabilities increase, cash : Cash
inflow
15.What does a statement of cash flow show an investor?: Cash flows from operating, investing, and financing
activities
1/
5
, WGU C214 Quick Study for PA/OA
(2025)
16.What does it mean if a company has a CFO of $100, CFI of $50, CFF of
$300: The company relied on external financing
17.What is the CFO indirect method?: The indirect method is a "bottom-up" approach where we start with net
income and adjust for differences between net income and CFO
18.What is "scrubbing the data" for ratio analysis: financial statements are comparable to the peer group
19.What are the steps to ratio analysis: Step 1: Basic data - identify groups and scrub data
Step 2: Differences - red flags
Step 3: Deepen analysis - evaluate competition and threats Step 4: Report cause and cure -
source of weakness and fixes
20.What are things to account for with ratio analysis: Timing differences aka season firms
Accounting differences
21.Reviewing a financial statement, how is profit margin calculated: Profit margin = net profit (net income) /
Sales (revenue)
22.What is Return on Equity (ROE): Profitability ratio ROE = Net Income /
Owner's Equity
Earnings generated for each dollar of equity invested
23.What does gross margin measure: The percent of revenue remaining after the cost of good sold
High gross margins usually mean efficient production
24.What is Return on Assets (ROA): (ROA) = Net Income / Total Assets Return on Assets = Net Income/Total
Assets, a profitability ratio that shows net earnings as a percent of all assets entrusted to management.
25.Two types of risks with ratios: External risk - economy, competition, technol- ogy
Internal risk - financial flexibility, willingness, attitude
26.Bond: What is par value: Face value of bond, usually $1,000
27.Bond: What is coupon rate: Interest rate of the bond aka coupon yield
28.What are affirmative covenants and negative covenants: Affirmative: Things a company pledges to do
Negative: Things a company pledges NOT to do
29.How is a corporate bond usually paid out: Annual or semiannual interest payments and a final principal
payment
30.If a 5 year bond has semi-annual payments, how many payments are there: 10. The number of periods is
multiplied by 2 because it pays out every 6 months instead of annually
2/
5
