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Financial Accounting: Practice Exam with Solutions for FMC Level 1, Exams of Marketing Business-to-business (B2B)

A practice exam for fmc level 1, covering fundamental financial accounting concepts. It includes multiple-choice questions with solutions, definitions of key terms, and explanations of important financial statements like the income statement, balance sheet, and cash flow statement. The document also explores financial ratios and their significance in analyzing a company's performance.

Typology: Exams

2024/2025

Available from 03/11/2025

wallen-smith
wallen-smith 🇺🇸

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Adventis FMC Level 1 MC Practice Exam
Complete Solutions | Already Passed| Verified
what is the purpose of the income statement?
What does it indicate? - ✔✔to show stakeholders if the firm made or lost money during the period
being reported
it indicates how revenues are transformed into net income
define:
Revenue - ✔✔the amount charged for the delivery of goods and services
define:
COGS - ✔✔direct costs of producing revenue
define:
Operating Expense - ✔✔all other expenses required to run the business
what does Operating Income indicate?
-what is the other word for it? - ✔✔Op income indicates a company's earnings power from ongoing
operations
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Adventis FMC Level 1 MC Practice Exam

Complete Solutions | Already Passed| Verified

what is the purpose of the income statement?

What does it indicate? - ✔✔to show stakeholders if the firm made or lost money during the period being reported

it indicates how revenues are transformed into net income

define:

Revenue - ✔✔the amount charged for the delivery of goods and services

define:

COGS - ✔✔direct costs of producing revenue

define:

Operating Expense - ✔✔all other expenses required to run the business

what does Operating Income indicate?

-what is the other word for it? - ✔✔Op income indicates a company's earnings power from ongoing operations

Another work for Operating profit is EBIT

what does net profit indicate for the shareholder? - ✔✔indicates the increase in shareholder value resulting from the operations of the firm

list the general flow of the income statement - ✔✔revenue

(COGS)

Gross Profit

(Operating expense)

Operating Income

(non Op Expense)

(Tax)

Net Income

what does the balance sheet show - ✔✔it is a financial statement that represents the financial position of the company on a particular date

Balance sheet:

Assets are what the company , Liabilities are what the company , and equity is the ------ ------

  • of shareholders against the company - ✔✔Assets are what the company owns, Liabilities are what the company owes, and equity is the Remaining Claims of shareholders against the company

Define:

Debt

A negative change in working capital indicates that it is a SOURCE of cash. the firm grows on the limbs of their suppliers, and this cash received is positive

is short term debt included when calculating the working capital for the firm? - ✔✔no, short term debt isn't included because

working capital=

(non-cash current asset)- (NON-DEBT current liabilities)

which financing is cheaper for the firm and less risky for the investor:

Debt or Equity Financing

Explain why its less riskier? - ✔✔debt financing is cheaper and less risky

debt holders have a priority claims on the firm's assets if the firm goes bankrupt

while equity holder have no guarantee that they will get their investment back if the firm goes bankrupt

what statements will be use to derive the metrics to calculate the working capital for the firm? - ✔✔we only need to use the balance sheet

remember:

WC= non cash current assets- non debt current liabs

all of these values can be found on the balance sheet

net debt:

-what is it?

  • what financial statements do we use to derive the metrics used to calculate it? - ✔✔net debt is a key financial metric used to determine the resulting debt the firm would have, if the firm used all its cash on hand to [ay down their debt

we only need the balance sheet since:

net debt = total debt-cash

**both can be found on the balance sheet **

Cash Flow Statement:

  • what does it show?
  • what does it reconcile? - ✔✔the cash flow statement shows how changes in the balance sheet accounts and net income affect the cash balance of the firm

it reconciles net income to changes in cash

list the 3 types of activities on the cash flow statement - ✔✔1. cash from operations

  1. cash from investing
  2. cash from financing

the 4 most common line items are:

  1. Change in debt
  2. Dividends
  3. Share repurchases
  4. share issuances

explain why depreciation and amortization is a positive value in the CF statement, and why do we add it

as a source of cash? - ✔✔though depreciation is an expense, it is only there for accounting purposes. the expense of the asset was fully insured when it was purchased

thus, we must add back depreciation to reflect that it is not a use of cash, rather a source of cash

to say that something is a source of cash, means that that item on the CF statement will be and

will Value to the firms cash account - ✔✔to say that something is a source of cash, means that that item on the CF statement will be POSITIVE and will ADD Value to the firms cash account

Capital Expenditures:

  • how is it calculated?
  • what does it indicate about cash when there is a positive value of CAPX from year(t) to year(t-1)? -

✔✔capital expenditures=

CAPX(t)- CAPX(t-1)

when we have a positive value for CAPX, it means that the firm has acquired more fixed assets over the period.

  • to acquire more fixed assets, the firm must have used some cash to obtain them.

THUS:

A positive value for CAPX indicated that it is a USE of cash, and should be take away value from the firm cash account

true or false:

Share repurchases are a SOURCE of cash, and should be reported as a POSITIVE value on the CF

Statement - ✔✔FALSE:

the firm must use cash to repurchase its own shares, this means that share repurchases are a USE of cash and should be a NEGATIVE number on the CF statement.

explain how repurchases are a form of returning capital to equity holders? - ✔✔when the firm purchases shares, it takes away from the existing shares outstanding.

shareholder holding some of the remaining shares outstanding will now have a higher earnings per share.

the increased earnings is a form of returning capital to the shareholder

Dividends:

  • is it a source or use of cash?
  • do they affect ownership percentages of the firm? - ✔✔dividends are cash payouts to shareholders of the firm, thus it is a USE of cash.

(CF from Operations) - (Capital Expenditures)

Liquidity Ratios:

  • What do they indicate about the firm?
  • list the two mist common liquidity ratios? - ✔✔Liquidity ratios indicate the firms ability to meet short term financial obligations.
  1. cash ratio: Cash/Current Liabilities
  2. Current ratio: Current assets/ current liabilities

Efficiency ratios:

  • what do they indicate about the firm?
  • what are the two must common efficiency ratios? - ✔✔efficiency ratios indicate how efficiently the company utilizes its assets
  1. asset turnover ratio
  2. days receivable

profitability ratios:

  • what do they indicate about the firm?
  • list the 4 most common portability ratios - ✔✔probability ratios asses how the firm makes profit relative to its assets, equities, and ratios
  1. gross margin
  1. operating margin
  2. net margin
  3. return on equity

return on equity:

  • what type of ratio is it?
  • how is it calculated?
  • how is it interpreted? - ✔✔Return on equity:

-profitability ratio

ROE= (net income)/ (shareholder equity)

interpretation:

for every $1 amount of equity, the firm made in net income

credit ratios:

  • what do they indicate about the firm?
  • list the 4 most common credit ratios? - ✔✔credit ratios indicate the firms ability to meet its long term obligations.
  1. Debt/ EBITDA
  2. Debt/EBIT
  3. Debt to equity
  4. EBITDA interest cover ratio