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Multiple choice questions on basic financial management.

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1. What is the primary goal of financial management?

  1. Increased earnings
  2. Maximizing cash flow
  3. Maximizing shareholder wealth
  4. Minimizing risk of the firm

2.    An item which may be converted to cash within one year or one operating cycle of the firm is classified as a

  1. current liability.
  2. long-term asset.
  3. current asset.
  4. long-term liability.

3. In addition to comparison with industry ratios, it is also helpful to analyze ratios using

  1. trend analysis.
  2. historical comparisons.
  3. neither; only industry ratios provide valid comparisons.
  4. both a and b.

4. In break-even analysis the contribution margin is defined as

  1. sales minus variable costs.
  2. sales minus fixed costs.
  3. variable costs minus fixed costs.
  4. fixed costs minus variable costs.

5. The key initial element in developing pro forma statements is

  1. a cash budget.
  2. an income statement.
  3. a sales forecast.
  4. a collections schedule.

6. A firm has forecasted sales of $4,000 in January, $6,000 in February and $5,500 in March. All sales are on credit. 40% is collected the month of sale and the remainder the following month. How much is collected from accounts receivable in February?

  1. $5,400
  2. $4,000
  3. $6,000
  4. $3,000







Collections - Current Month (40%)


Collections - Previous Month (60%)


Total Accounts Receivble collected



7. Pressure for current asset buildup often results from

  1. decline in sales growth.
  2. rapidly expanding sales.
  3. increased demands of short-term creditors.
  4. none of the above.

8. One of the first considerations in cash management is

  1. to have as much cash as possible on hand.
  2. synchronization of cash inflows and cash outflows.
  3. profitability.
  4. to put any excess cash into accounts receivable.

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