CAA Financial Management & Ethics Flashcards

Which of the following ratios is most useful for evaluating how efficiently a company uses assets to generate revenue?

Answer: Asset turnover ratio

Asset turnover ratio = Net sales ÷ Average total assets, measuring how effectively a company generates revenue from its asset base.

Whistle-blower protections under SOX primarily protect employees who:

Answer: Report suspected securities fraud or violations of SEC rules

SOX Section 806 protects employees of publicly traded companies who report fraud or SEC violations from retaliation by their employers.

In a discounted cash flow (DCF) analysis, the terminal value accounts for:

Answer: Cash flows beyond the explicit forecast period

Terminal value captures the present value of all cash flows expected to occur beyond the detailed projection period, often representing the majority of total DCF value.

Which financial management principle states that riskier investments must offer higher expected returns to attract investors?

Answer: Risk-return tradeoff

The risk-return tradeoff holds that investors demand higher expected returns to compensate for taking on greater risk.

An accountant who allows a client's gift to influence their professional judgment is violating which ethical principle?

Answer: Objectivity

Objectivity requires accountants to remain unbiased and free from conflicts of interest; accepting gifts that influence judgment compromises this principle.

The DuPont analysis decomposes return on equity (ROE) into which three components?

Answer: Net profit margin, asset turnover, and equity multiplier

DuPont ROE = Net profit margin × Asset turnover × Equity multiplier, linking profitability, efficiency, and leverage.