BCOR 1010 Midterm #2 Essay Questions

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Business Core
BCOR 1015
Beth Cross

Essay questions- BCOR 1010 EXAM 2 1. What purposes might a company need long term funds for? How will the choice of debt or equity- financing impact a firm’s capital structure? A company would need funds for-(PPE) Property, place and equipment anything with a strategic investment. Also, if they buy a company or need to take out a big loan. Debt financing affects company by leverage, more risk. Equity makes dilution bigger, because of the sale of stock, Preferred or Common stock. 2. What is the relationship between financial accounting and corporate social responsibility? Financial accounting ensure CSR because it makes sure no one is embellishing the companies money and regulates business Keeps track of the companies spending and where their money is going. Financial accounting has GAAP incorporated with it and they regulate themselves. CSR is another system to keep the firm ethical. You take into account stakeholders, so when investers look at a company they know the info is accuracted and truthful so they can make informed decisions. Based on current and future info they are given. financial info. Accounting and finance be ethical. 3. What is the accounting equation? What is the primary purpose of double entry bookkeeping? ASSETS=owners equity + liabilities, Keeps the companies balance sheet balances, keeps check of money. Both sides of the equation must be balanced. Extra info- Assets are Cash, accounts receivable listed in order of liquidity. Liabilities-costs of good sold, debt, accounts payable. Owners equity-total profits you make. 4. What tools could the Federal Reserve use to impact the supply of money and how could its actions impact the economy and the supply of money? the fed uses three main tools- 1. Open market operations-which is the buying and selling of government bonds. You sell the bonds to take cash out of the economy. It is the value of money-always changing. 2. Discount Rate- interest rate at which the fed loans money to banks. Lower rate=increase money. The fed can raise or lower rates so banks don’t lend to much money. 3. Reserve Requirement-when the fed tells how much money the bank is required to hold in their vaults. If more money in vaults then less money in circulation and vice versa. If there is inflation then they will make the requirement higher. It is the percent of deposits that a bank has to keep on hand. Use these tools to keep the market in check. 5. What are the purposes of financial ratio analysis? Name one major category of financial ratios and what information that category provides/what it measures. Identify a stakeholder group that might use the ratio and why. Purposes-to compare companies performance to other companies and compare old to new performance (performance over time). Simplifies complex information. Significant because it allows an investor to determine whether or not they want to invest in the firm. Profitability ratios help know how net income/profit is doing for the sales revenue. Asset Utilization looks at how well a firm uses assets to make a profit. used to see if they should invest in a company. Asset utilization measures inventory turnover, which is how quickly a company is going through their inventory. Liquidity how fast firm can turn something into cash. Stakeholder group would be an investor to see how much revenue they pull in to see if they want to invest in the company. 6. How can a company use promotion of a product or service to gain control over the price it charges for that product or service? A company uses promotion of a product or service to gain control over the price it charges by differentiating (showing how your product is different and better and the goal is to gain control of the price). Promotion also positions, add value and identifies and creates a need. Communicates uses, features and benefits of a product. SIGNIFICANT- good marketing creates a need for the product- so the consumer wants the good/service even if they might not have a need for it. 7. What does the income statement tell about a business? What does the balance sheet tell about a business? Why would an investor look at both? How are the statements connected? Income statement shows how profitable a business is over time(Year), tells how firm operates; **sales- expenses=gain/loss. Balance sheet tells what a companies assets, equity and liability and is a snapshot for a specific period of time, assets=owners equity+liability, tangible/intangible, listed in descending order of liquidity, SIG-represents the value held In the company by owners. Investor look at both to see how much the company is worth and how long its equipment is valued, income statement shows if firm is profitable and BS shows what the owe and own and if they are in debt. They are connected by showing the net income/loss on IS and owners equity on BS represent change in business. Expenses on IS show up on liabilities on BS. Show depreciation to show. Bs-shows how a business is doing at a certain point at time. Shows if there is stock involved-shows total financial position of business at certain point in time.
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