Aafm/Questions/Mcq 1 Flashcards
6 cards from real AAFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Aafm/Questions/Mcq 1 flashcards as text
Which component of a company's balance sheet represents obligations the company must settle within one year?
Answer: Current liabilities
Current liabilities are short-term obligations due within one year, such as accounts payable and short-term debt. Long-term liabilities extend beyond one year, while equity accounts represent ownership, not obligations.
A company's debt-to-equity ratio is primarily used to assess:
Answer: The degree of financial leverage and capital structure
The debt-to-equity ratio compares total debt to shareholders' equity, revealing how much of the company is financed through borrowing versus owner funds — a direct measure of financial leverage and capital structure risk.
In the Capital Asset Pricing Model (CAPM), the beta coefficient measures:
Answer: A stock's sensitivity to systematic market movements
Beta quantifies how much a security's price moves in relation to the overall market. A beta of 1 means the stock moves in line with the market; higher beta indicates greater sensitivity to market swings (systematic risk).
Net Present Value (NPV) is considered positive when:
Answer: Discounted future cash inflows exceed the initial investment cost
A positive NPV means the present value of all future cash flows, discounted at the required rate of return, exceeds the upfront cost — indicating the project creates value for shareholders.
Which financial metric best measures how efficiently a company collects payments from its credit customers?
Answer: Accounts receivable turnover
Accounts receivable turnover measures how many times per period a company collects its average receivables balance. A higher ratio indicates faster collection and more efficient credit management.
Under the Efficient Market Hypothesis (EMH) in its strong form, which of the following is true?
Answer: No investor can consistently earn abnormal returns using any information
Strong-form EMH holds that market prices fully reflect all information — public and private — meaning even insiders cannot consistently achieve abnormal returns. This is the most extreme form of the hypothesis.