1.1a. Capital budgeting is a financial preparation on a long run. It also evaluates and
see potential major projects or investments that are available to acquire. It is important
in the business because it creates accountability and measurability, that when a
business seeks to invest its resources to a project it needs understanding the risk and
return involved that the business can benefit fully in the process.
1.1b. a firm’s capital structure
1.1c. Working capital Management
1.4a. The relationship between stockholders and management .
1.4b. Agency problem refers to a conflict of interest between a company's management
and the company's stockholders. The best thing we can do about ageny problem is full
transparency, placing restrictions on the agent's capabilities, and tying your
compensation structure to the well-being of the principal. Agency cost is a type of
internal company expense, which comes from the actions of an agent acting on behalf
of a principal. Agency costs typically arise in the wake of core inefficiencies,
dissatisfactions, and disruptions, such as conflicts of interest between shareholders and
management.
1.5c. First managerial compensation, particularly at the top, is usually tied to financial
performance in general and often to share value in particular
The second incentive related to job prospects. Better performers generally get promoted
and those with good reputations and job history demand higher salaries in the labor
market.
2.2a. Revenues - Expenses = Income
2.2b. GAAP (Generally Accepted Accounting Principles), cash versus non-cash items
and time and costs
2.2c. The income statement measures a company's financial performance, such as
revenues, expenses, profits, or losses over a specific period of time often called
statement of financial performance while a n income statement shows whether a
company made a profit, and a cash flow statement shows whether a company
generated cash.
The income statement is the most common financial statement and shows a
company's revenues and total expenses, including noncash accounting, such as
depreciation over a period of time.The cash flow statement is linked to the income
statement by net profit or net burn, which is the first line item of a cash flow statement,
used to calculate cash flow from operations.
2.1a. balance sheet is a financial statement that reports a company's assets, liabilities
and shareholders' equity in a particular point in time, covering its assets, liabilities and
shareholders' equity. The purpose of a balance sheet is to give interested parties an
idea of the company's financial position, in addition to displaying what the company
owns and owes.
2.1b. liquidity means an asset conversion to cash. It is very important because we
cannot determine the condition of the business if it grows if we don’t convert our asset
into cash. Material things that a business own is still part of the business and it is
important to liquidate those assets in calculating the business financial situation.
2.1c. Leverage is an investment strategy of using borrowed money—specifically, the
use of various financial instruments or borrowed capital—to increase the potential return
of an investment. Leverage can also refer to the amount of debt a firm uses
to finance assets.
2.1d. The book value of an asset is its original purchase cost, adjusted
for any subsequent changes, such as for impairment or depreciation. Market
value is the price that could be obtained by selling an asset on a competitive,
open market. For me, the two value are important in the business field but I think
financial manager can favor market value, because this is where we can generate
income preferably in trading especially the value that the investment community gives to
a particular equity or business.
3.3a.
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
Liquidity Ratios
Market ratios
Activity Ratios
Debt Ratios
The following figures have been obtained from the balance sheet of XYL
Company.
Current assets
Non-current assets
Total assets
3,500,000
12,100,000
15,600,000
Total liabilities
11,480,000
Stockholders' equity
4,120,000
Total liabilities and equity15,600,000
The above figures will provide us with a debt ratio of 73.59%, computed as
follows:
Debt
ratio
= Debt / Assets
= 11,480 / 15,600
= 73.59%
Alternatively, if we know the equity ratio we can easily compute for the
debt ratio by subtracting it from 1 or 100%. Equity ratio is equal to 26.41% (equity
of 4,120 divided by assets of 15,600). Using the equity ratio, we can compute for
the company’s debt ratio.
Debt
ratio
= 1 - Equity ratio
= 1 - .2641
= .7359 or 73.59%

Profitability Ratios
This ratio measures the overall profitability of company considering
all direct as well as indirect cost. A high ratio represents a positive return
in the company and better the company is.
Formula: Net Profit ÷ Sales × 100
Net Profit = Gross Profit + Indirect Income – Indirect Expenses
Example:
Particulars
Shareholder Equity
Equity Shares, 2346 share outstanding, Par value 0.05
Paid In Capital
Retained Earning
Total Shareholder Equity
Total Assets
Current Liability
Total Sales
Gross Profit
Net Operating Profit
Net Profit
Profitability Ratios:
1)
Return on Equity = Profit After tax / Net worth,
= 3044/19802
Amount
118
5858
13826
19802
30011
8035
53553
16147
3028.65
3044
= 15.37%
2)
Earnings Per share = Net Profit / Total no of shares outstanding
= 3044/2346
= 1.30
3)
Return on Capital Employed = Net Operating Profit / Capital
Employed * 100
=3028.65/(300118035)*100
= 13.78%
4)
Return on Assets = Net Profit / Total Assets
= 3044/30011
= 10.14%
5)
Gross Profit = Gross Profit / sales * 100
= 16147/53553*100
= 30.15%
6)
Net Profit = Net Profit / Sales*100
= 3044/53553*100
= 5.68%
3.3b.
total debt ratio= total assets - total equity/ total assets
the debt-equity ratio ex. =total debt/total equity
and equity-multiplier ex. = total assets/ total equity
3.3c. the numerator is sales for both Fixed asset turnover= sales/Net Fixed Assets and
Total Asset turnover= sales/ total assets
3.3d.
The numerator is Net Income for both return on assets= Net income/total
assets and return on equity= net income/total equity.



return on assets is s measure of profit per dollar of assets.
return on equity is a measure of how the stockholders fared during the year.
you interpret the results in percentages or ROE for every dollar in equity.
3.4a. Profit Margin and Total Asset Turnover
3.4b. Operating efficiency (as measured by profit margin), Asset use efficiency (as
measured by total asset turnover) and Financial Leverage ( as measure by the equity
multiplier)
5.2a. Present value is the concept that states an amount of money today is worth more
than that same amount in the future. In other words, money received in the future is not
worth as much as an equal amount received today. the current value of future cash
flows discounted at the appropriate discount rate.
5.2b. Compounding a current amount for future value.
5.2c. Cash value of an investment at some point in the future.
5.2d. $1*(1+r)^t
5.3a. FV) / (1 +. 03)^1
5.3b. The Rule of 72 is a quick, useful formula that is popularly used to estimate the
number of years required to double the invested money at a given annual rate of return.
Alternatively, it can compute the annual rate of compounded return from an investment
given how many years it will take to double the investment.