Question

1. Name 3 ways management may try to increase revenue which are not necessarily in the best long-term interests of the firm

2. When performing a credit analysis, should we use Total Assets or Tangible Assets? Why?

3. If we expect a downturn in the economy to negatively impact our firm, would we prefer to have high fixed costs or high variable costs? why?

4. How would you expect the statement of cash flows to look for a firm in the mature stage of growth?

5. List the pros and cons of using market value and book value as a measure of firm value

6. The major source of cash for a firm in its introductory stage of growth would likely come from:

a.Operating Activities

b. Investing Activities

c. Financing Activities

d. Asset Management Activities

e. Both A and B are correct

Answer 1

1. Three ways by which management can inflate the revenues of the company which are not in the best interest of the company are -

A. Hiding over the books of accounts liabilities and showing it as off balance sheet item.

B. Such strategies which can lead to increase in sales like aggressive pricing strategies but that cannot be turned into higher profits for the company because the margin is very lower

C. Sales can also be inflated through recording transactions on mark-to-market basis even if they are not realised.