D076 Finance Skills for Managers - Set 2 - Part 3

Correct Answer: Balance sheet

The balance sheet shows a company's financial position, including assets, liabilities, and equity, at a specific point in time.

Correct Answer: Net income / Shareholder's equity

ROE measures a company's profitability by comparing net income to shareholder's equity.

Correct Answer: Accounts payable

Accounts payable is a spontaneous account because it increases naturally with sales as more goods are purchased on credit.

Correct Answer: The maximum growth rate it can achieve without issuing new equity

SGR is the rate a company can grow without needing to issue new equity, assuming it maintains its current financial ratios.

Correct Answer: Net present value (NPV)

NPV calculates the difference between the present value of a project's cash inflows and outflows to determine its profitability.

Correct Answer: The minimum rate of return a project must earn to be accepted

The hurdle rate is the minimum rate of return that a project must achieve for it to be considered a worthwhile investment.

Correct Answer: Profit margin, asset turnover, and financial leverage

The DuPont framework breaks down ROE into profit margin, asset turnover, and financial leverage to assess how effectively a company uses its assets and equity.

Correct Answer: Discount bond

A discount bond is issued at a price lower than its face value and pays the face value at maturity.

Correct Answer: FV / (1 + r)^n

The present value (PV) of a future cash flow is calculated by discounting the future value (FV) using the formula FV / (1 + r)^n, where r is the discount rate and n is the number of periods.

Correct Answer: To evaluate the relative profitability of a project

The profitability index (PI) helps evaluate the relative profitability of a project by dividing the present value of cash inflows by the initial investment.