fin man midterm reviewer

FINANCIAL MANAGEMENT Midterm

NAZARENO, JOEY S. | AC41FB1 1

1. As a dynamic process means, rivalry or competitiveness between or among parties to deliver a

better deal to buyers in terms of quality, price, and product information

- COMPETETION

2. Firms that face a downward-sloping demand for their product.

- PRICE SERACHERS

3. Means that the amount the firms able to sell are inversely related to price they charge.

- Downward-Sloping Demand

4. Refers to a market structure characterized by a large number of small firms producing an

identical products in an industry (market area) that permits complete freedom of entry and exit.

- PURE COMPETITION

5. The market in pure competition referred to as

- PRICE-TAKERS MARKET

6. It highlights the importance of the competitive process.

- PRICE-TAKER MODEL

7. He noted more than 200 years ago, that competition harnesses personal self-interest and

channels it into activities that enhance our living standards.

8. A powerful source of economic progress when it is directed by the competitive market process.

- PERSONAL SELF-INTEREST

9. Is only one component of economic well-being.

- MONEY INCOME

10. Easily to measure and is therefore, widely used as a yard sticks of economic well-being and

inequality prevailing in society.

- MONEY INCOME

11. It provides insight into both the allocative role and sources of differences in income.

- ECONOMICS

12. Market entry barriers includes?

a. ) Economies of scale b.) Control over an essential resource

c.) Government licensing d.) Patents

13. A requirement that one obtains permission from the government in order to perform certain

business activities or work in various occupation.

- LICENSING

14. The oldest and considered most effective method of protecting a business firm from potential

competitors.

- LEGAL BARRIERS

15. Most countries have these to give inventors a property right to their inventions

- PATENT LAW



16. Derived fr. Greek word meaning “single Seller”, which is characterized by a single seller of a

well-defined product for which there are no good substitutes, and there are high barriers to

entry of any other firms into market for the product.

- MONOPOLY

17. It is always a matter of degree

- MONOPOLY

18. It means few sellers

- OLIGOPOLY

19. Oligopoly is characterized by:

A. Small number of rivals

B. Interdependence among the sellers because each is large relative to the size of the market

C. Substantial economies of sale

D. High entry barriers to the market

20. True or False: the supply decisions of one firm in oligopoly market will not significantly influence

the demand, price, and profit of rivals.

- FALSE (it will significantly

influence)

21. True or False: in an oligopolistic industry, large scale production (relative to total market) is

generally required to achieved minimum per-unit cost.

- TRUE

22. True/False: Economies of scale are present in oligopoly, so a small number of large scale firms

can produce enough of product to meet the entire market demand.

- TRUE

23. True/ False: as with oligopoly , barriers to entry limit the ability of new firms to compete

effectively in monopolistic industries.

- FALSE (oligopoly-monopoly &

monopolistic- oligopolistic)

24. True or False: The products of sellers in an oligopolistic industry may be either similar or

differentiated.

- TRUE

25. T/F: An oligopolist, unlike a monopolist or a price taker can determine the product price that will

deliver the maximum profit simply by estimating its own costs and the existing market demand.

- FALSE (cannot)

26. A business undertaking owned, controlled and managed by the state on behalf of for the

benefit of the public at large.

- PUBLIC SECTOR ENTERPRISE (PSE)

27. Its basic objective is to achieve the strong industrial base and to provide infrastructure for the

development of the economy of the country.

- PUBLIC ENTERPRISING

28. T/F: The concepts of financial management are equally applicable to both private sector

undertakings and PSEs , but the rules , procedures and accountability of final decisions are more

rigid in PSEs as they are the financed by the government out of taxes collected from public.



- TRUE

29. Causes of ineffectiveness, inefficiency and corruption could be traced to any one or combination

of the ff:

a. Government Is not truly profit oriented

b. Political interference is very high in PSEs

c. Short tenure mangers appointed by government to manage these units only take one

steps for short term gains ignoring long term implication

d. Less flexibility is prevalent in PSEs

e. Constant fear of COA requires parliamentary questions increase the tendency of passing

the buck and delaying decesions.

30. T/F: Business needs quick decision and action and this is possible in a bureaucratic organization.

- FALS( not possible)

31. This involves adopting more liberal licensing policy of private sector

- DE-LICENSING or DEREGULATION

32. It is a process in which PSE reduces its portion in equity by disposing its shareholdings.

- DISINVESTMENT

33. Means giving the entire management control over the PSE to private enterprising.

- PRIVATIZATION

34. The opposite situation of Nationalization

- PRIVATIZATION

35. T/ F: Disinvestment always forms part of privatization

- TRUE

36. OBJECTIVES OF DISINVESTMENT/PRIVATIZATION

a. Revenue Collection

b. Improvement in efficiency

c. Market discipline

d. Resource Mobilization

e. Direct participation of public

f. Encourage employee ownership

g. Reduction of bureaucratic control

37. T/F: one of the arguments against disinvestment/privatization is that there would be chances of

asset stripping by the strategic partner.

- TRUE

38. It refers to the availability of cash in the near future after taking account of financial

commitments.

- LIQUIDITY

39. Refers to availability of cash over the longer term to meet financial commitments as they fall

due.

- SOLVENCY

40. Financial Statements are used by these parties to decide whether to buy or sell equity share.



- INVESTORS AND ANALYST

41. They need financial accounting information to help determine loan terms, loan amounts,

interest rates and required collateral.

- CREDITORS and SUPPLIERS

42. They need accounting information to assess its profitability and risks, to evaluate managerial

performance and to help make leadership decisions.

- SHAREHOLDERS (OWNERS) &

DIRECTORS

43. They demand the financial accounting information to monitor the business firm’s compliance

with laws, for public protection, price setting and for setting tax and other regulatory policies.

- RUGULATORY AGENCIES

(SEC, BIR, BSP)

44. T/F: Customers both current and potential, need accounting information to evaluate a

company’s ability to provide products and services as agreed and to assess the company’s

reliability and staying power.

- TRUE

45. They would wish to estimate the firm’s profitability to assess the fairness of returns on mutual

transactions and strategic alliances.

- POTENTIAL STRATEGIC PARTNERS

46. T/ F: In the Philippines, publicly listed companies must file financial accounting information with

the SEC.

- TRUE

47. Accounting information that must be file to the SEC includes.

- Audited annual report (4 FS)

- Unaudited quarterly or interim

reports (summary of 4 FS)

48. One of the constraints on relevant and reliable information that if there is undue delay in in the

reporting of information, it may lose its relevance.

- TIMELINESS

49. T/F: The balance between the benefit and cost is a pervasive constraint rather than a qualitative

characteristics.

- TRUE

50. T/F: A balancing or trade-offs between qualitative characteristics is often necessary.

- TRUE

51. It is frequently described as showing a true and fair view of the financial position, performance

and changes in financial position, performance and changes in financial position of an

enterprise.

- Financial Statements

52. It reports on company’s financial position at a point in time.

- Statement of Financial Position

53. Reports the performance over a period of time.



- Statement of Comprehensive

Income

- Statement of stockholders equity

- Statement of cash flow

54. The 4 FS are linked with each other and liked across time, that linkage is also known as.

- ARTICULATION

55. Measures the change in company value as measured in accordance with the financial reporting

standards.

- INCOME STATEMENTS

56. One of the two ways a company can finance its assets, where it can raise money from

shareholders.

- OWNER FINACING

57. Company can raise money from banks or other creditors and suppliers

- NONOWNER FINANCING

58. Owners claim on assets

- EQUITY

59. Non-owners claim on assets

- LIABILITIES (or debt)

60. This means the FS includes a parent company and one or more subsidiaries, companies that the

parent company owns.

- CONSOLIDATED

61. Includes resource contributed to the company by its owners along with any profit retained by

the company.

- OWNER (OR EQUITY) FINANCING

62. Current assets are often called _____________ because these assets “turn over” that is , they

are used and then replaced throughout the year.

- WORKING CAPITAL

63. The difference between current assets minus current liabilities

- NET WORKING CAPITAL

64. Difference between current assets and non-interest bearing current liabilities.

- NET OPERATING WORKING

CAPITAL

65. Reports on a company’s performance over a period of time and lists amounts for revenues,

expenses and other comprehensive income.

- STATEMENT OF COMPREHENSIVE

INCOME

66. T/F: Input markets generates most expense such as inventory, salaries, materials and logistics.

While Output markets generate revenues to customers and it also generate some expense such

as marketing and distributing products and services to customers.

- TRUE

67. Represents the cash that the company received from the sale of stock to stockholders, less any

funds expended for the purchase of stock.



- CONTRIBUTED CAPITAL

68. Represent the cumulative total amount of income that the company has earned and that has

been retained in business and not distributed to shareholders in the form of dividends.

- RETAINED EARNINGS

69. Reports the change in a company’s cash balance over a period of time.

- STATEMENT OF CAH FLOWS

70. The process of extracting information from financial statements to better understand a

company’s current and future performance

- FINACIAL STATEMENT ANLYSIS

71. A comparison in fraction, proportion, decimal or percentage of two significant figures taken

from financial statements.

- FINANCIAL RATIOS

72. These ratios give us an idea of the firm’s ability to pay off debts that are maturing within a year

or within the next operating cycle.

- LIQUIDITY RATIOS

73. These ratios give us an idea of how efficiently the firm is using its assets.

- ASSET MANAGEMENT RATIOS

74. These ratios would tell us how the firm has financed its assets as well as the firm’s ability to

repay its long term debt. It indicates how risky the firm is and how much of its operating income

must be paid to bondholders rather than stockholders.

- DEBT-MANAGEMENT RATIOS

75. These ratios give us an idea of how profitability the firm is operating and utilizing its assets. It

combines the asset and debt management categories and show their effects on return on

equity.

- PROFITABILITY RATIOS

76. These ratios which consider the stock price give us an idea of what investors think about the

firm and its future prospects.

- MARKET BOOK RATIOS

77. Primary test of solvency to meet current obligations from current assets as a going concern

- CURRENT RATIOS

78. Measures the efficiency of the firm in managing all assets

- INVESTMENT OR ASSET TURNOVER

79. Show proportion of all assets that are financed with debt

- DEBT RATIO

80. Indicates a portion of assets provided by the owners. Reflects the financial strength and caution

to creditors.

- EQUITY RATIO

81. Measures overall efficiency of the firm in managing assets and generating profit.

- ROA

82. Measures rate of return on resources provided by the owners.

- ROE



83. Measures relationship between price of OS in the open market and profit earned on a per share

basis.

- PRICE/ERANINGS RATIO

84. Ratios that measure the firm’s ability o meet cash needs as they arise.

- LIQUIDITY RATIO

85. Are ratios that measure the liquidity of specific assets such as AR, inventory and fixed assets.

- ACTIVITY RATIO

86. Are ratios that measure the extent of a firm’s financing, with debt relative to equity and its

ability to cover interest and other fixed charges such as rent and sinking fund payment.

- LEVERAGE RATIO

87. Are ratios that measure the overall performance of the firm and its efficiency managing assets,

liabilities and equity.

- PROFITABILTY RATIO

88. Widely regarded as a measure of short-term debt paying ability.

- CURRENT RATIO

89. Is a much more rigorous test of a company’s ability to meet its short-term debts.

- QUICK or ACID TEST RATIO

90. The formula that shows the rate of return on equity can be found as the product of profit

margin , total assets turnover and equity multiplier.

- DuPoint Equation

91. Disaggregation of ROE was initially introduced by

- E. I. DuPoint de Nemours and

company

92. The amount of profit that the company earns from each peso of sales

- PROFIT MARGIN

93. A productivity measure that reflects the volume of sales that a company generates from each

peso invested in assets.

- ASSET TURNOVER

94. Measures the degree to which the company finances its asset with debt rather than equity.

- FINACIAL LEVERAGE

95. Measures the return on investment for the company without regard to how it is financed.

- RETURN ON ASSETS

96. Managers focus on reducing manufacturing and administrative overhead expense to increase

profitability.

- EXPENSE MANAGEMENT

97. Refers to all production expense other than labor and materials.

- MANUFACTURING OVERHEAD

98. Refers to the volume of sales resulting from invested in assets.

- PRODUCTIVITY



Statements:

1. In a price-taker market, the firm produces identical products and each seller is small relative

to the total market.

2. Price takers can sell all their output at a market price, but cannot sell any of their output at

a higher price.

3. When a firm is a price taker, there is no pricing decision to be made.

4. Price takers:

a. Try to choose the output level that will maximize profit given their costs and price

determined by the market.

b. They cannot thrive or even survive in a competitive unless they are sensitive to cost.

5. To maximize the profit of price searchers , they must not only decide how to produce, but

also what price to change.

6. A firm in a competitive market has a strong incentive to discover and produce goods and

services that consumer’s value highly relative to cost.

7. The ability of the firms freely to expand or contract their businesses and enter or exit

market means that, resources will not be unproductively in a particular industrywhen they

are valued more highly elsewhere.

8. When it comes from the issue of fairness, some people argue that the process (the system)

that generates the outcomes is more important than the actual result.

9. When the fixed cost in an industry are large, bigger firms can generally achieve lower

average total per-unit costs than smaller one.

10. Economist suggest at least 4 policy option.

a. Control the structure of the industry to ensure the presence of rival firms

b. Reduce artificial barriers that limit competition

c. Regulate the price and output of firms in the market

d. Supply the market with goods produced by a government firm.

fin man midterm reviewer

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