Sheet Review TEST#1
FINA 365: CORPORATE FINANCIAL ANALYSIS
Finance Department, Darla Moore School of Business University of South Carolina, Spring 2012
FORMAT OF THE TEST
Name: Section .
Instructions Fill-in your name (last name first) in the space above Fill-in your name (last name first), your student id, and your special code in the SCANTRON sheet (You must fill-in the bubbles with dark marks using a #2 pencil.)
Section 001: Tue, Thu 9:30 AM - 10:45 PM = Test Version A Section 002: Tue, Thu 11:00 AM - 12:15PM = Test Version B Section 003: Tue, Thu 12:30 PM - 1:45 PM = = Test Version C
Multiple Choice Questions (allotted time 60 minutes) Use the SCANTRON sheet for the answers There are 20 multiple choice questions worth 1 point each. Choose the best answer (There is only one correct answer per question.) The result may not be exactly the same as the # you calculate due to rounding.
Maximum possible score is 20. Total time allotted is 60 minutes. The university honor code strictly applies. This examination is a closed book exam. Turn off your cell phone and other electronic devices that may hamper with orderly conduct of the examination. Before you begin, make sure that the examination has been duplicated and collated correctly. You must return both the exam and the SCANTRON sheet.
Examples: Multiple Choice Questions (allotted time 15 minutes)
Choose the best answer Choice A B C D E
1
Example 1. What is the goal of corporate financial management? a.) increasing shareholder wealth b.) stabilizing stock prices c.) increasing sales d.) enhancing career prospects of CEOs e.) helping poor people
REVIEW SHEET
Chapter 1 Introduction Scope of Corporate Finance Financial Managers and Goals of Financial Management Agency Problems
Chapter 2 Financial Statements Balance Sheet Income Statement Cash Flow Analysis
Chapter 3 Ratio Analysis Liquidity Measures Long-term Solvency Measures Asset Management Measures Profitability Measures Market Value Ratios Du Pont Identity
Disclaimer: Please be advised that this list is not an all-inclusive list of things to know. Use this as a study guide. Do not presume that just knowing everything on this list will guarantee you an A since anything covered in class is a fair game.
TEN TIPS FOR THE EXAM
1.
Bring your calculator and make sure that it will not run out of battery during the exam
2.
Review my lecture notes and read all the articles/handouts given to you
3.
Make sure that you know how to solve all questions in the homework
4.
Make sure that you understand the examples I gave in class
5.
Memorize all the formulas used in and 3 4. (see the useful formulas section)
6.
Certain facts and logics should be hard-wired in your brain
7.
Read the questions carefully since many of the questions are MODIFICATIONS of what you have seen before.
8.
Read the instructions carefully
9.
Allocate your time wisely
10.
If you need any helps, do not hesitate to let me know. My email address is [e-mail]. However, I might not be able to answer all the email inquiries in a timely manner due to the large amount of emails received. My office is 459. In the case that you have last minute questions, I will be in my office on Monday, provided that you make an appointment with me in advance.
Relax and have a plenty of sleep before the exam. I wish you all the best of luck but I doubt whether you will need it since you are such a wonderful group of students.
USEFUL FORMULAS
Cash Flow Analysis Cash flow from assets = Operating cash flow Net capital spending Additions to net working capital (NWC) where Operating cash flow = Earnings before interest and taxes (EBIT) + Depreciation Taxes Net capital spending = Ending net fixed assets Beginning net fixed asset + Depreciation Change in NWC = Ending NWC Beginning NWC NWC = Current Assets- Current Liabilities
Cash flow from assets = Cash flow to creditors (bondholders) + Cash flow to stockholders (owners) where Cash flow to creditors = Interest paid Net new borrowing Cash flow to stockholders = Dividends paid Net new equity raised
Financial Ratios A. Short-Term Solvency, or Liquidity, Ratios 1. Current ratio = Current Assets/Current liabilities 2. Quick ratio = (Current Assets - inventory)/Current liabilities 3. Cash ratio = Cash/Current liabilities 4. NWC/Total assets 5. Interval measure = Current assets/ (Average daily operating costs)
B. Long-Term Solvency Measures 1. Total Debt Ratio = Debt/(Total assets) 2. Debt/Equity = (Total Debt)/(Total equity)
3. Equity multiplier = Total assets/Total equity = 1 + Debt/Total Equity 4. Times Interest Earned (TIE) = EBIT/Interest 5. Cash Coverage = (EBIT + Depreciation)/Interest
C. Asset Management, or Turnover, Ratios 1. Total Asset Turnover = Sales/Total assets
D. Profitability Measures (based upon book values) 1. Profit margin = Net income/Sales 2. Return on Assets = Net income/Total assets 3. Return on Equity = Net income/Total equity
E. Market Value Ratios 1. Price-earnings ratio = Price per share/ Earnings per share 2. Market-to-book ratio = Market value per share/ Book value per share
F. Du Pont Identity ROE = ROA x Equity multiplier = Profit margin x Total asset turnover x Equity multiplier