BUAD 3040 - Chapter 1 Finance functions involve analyzing...

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Chapter 1 Finance functions involve analyzing the proper allocation of financial assets. The key activities of the financial manager are analyzing and planning, making investment decisions, and making financing decisions. The primary goal of the financial manager is to maximize the wealth of the firm’s shareholders. This is not the same thing as maximizing profits. Maximizing profits may result in a short-term management viewpoint and a failure to properly consider risk. The fields of finance and accounting are closely related in that both are concerned with the calculation and reporting of the information that helps in measuring the performance of a business and assessing its financial position. The main difference between the two fields is that the financial manager must go one step further and make decisions based on the accountant’s financial data. Accountants compute income using generally accepted procedures, while financial managers are more concerned with cash flows. Holding period return: (HPR) HPR= {(ending value –amount invested) +dividends}/amount invested A corporation is considered to be a separate “legal entity” from the owners and has the power of an individual in that it can sue and be sued. ----true The main goal of financial manager is to increase the firm’s overall profits. ---false The primary goal of the financial manager is to maximize the wealth of the firm’s shareholders. ----true In a corporation, profits are generally measured in terms of earning per share---true In general, stockholders wish to incur higher risks in order to ensure higher returns.---false The stakeholders of a corporation are those that would be employees, customers, suppliers, and creditors. ----true The capital expenditure manager evaluates and recommends proposed long-term investments. ---true The (board of directors) has/have the ultimate authority in guiding corporate affairs and in making general policy for the corporation. If the managers of a company are not the owners of the company, they are considered (agents) The main economic principle used in managerial finance is (marginal analysis) Firms should maximize wealth rather than profits because maximizing profits ignores (risk) While evaluating decision alternatives or potential actions, financial managers must consider which of the following (only return) Chapter 2 Both insiders and outsiders use financial ratio analysis to compare a firm’s performance and status to that of other firms or to itself over time. Financial statement analysis takes two forms: cross- sectional analysis, where firms are compared to other similar firms, and time-series analysis, where firms are compared to themselves at different points in time.
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The more financial leverage that a firm uses, the greater will be its risk and expected return.---true Scantron Corporation’s inventory turnover ratio is twice as fast as the industry average. It is safe to assume that Scantron is a profitable corporation. The creditors of a firm must be satisfied before any earnings can be distributed to the common
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This note was uploaded on 05/15/2011 for the course BUAD 3040 taught by Professor Smallman during the Spring '11 term at Ohio State.

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BUAD 3040 - Chapter 1 Finance functions involve analyzing...

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