BMO Financial Management 2

Question 1

A company has a current ratio of 0.8. What does this indicate?

Accepted Answer

The company has more current liabilities than current assets

Answer

A current ratio below 1.0 means current liabilities exceed current assets, signaling potential short-term liquidity problems.

Question 2

Which capital budgeting method ignores the time value of money?

Accepted Answer

Payback Period

Answer

The payback period simply measures how long it takes to recover an investment without discounting future cash flows.

Question 3

What is the primary purpose of a cash flow statement?

Accepted Answer

To show cash inflows and outflows over a period

Answer

The cash flow statement tracks actual cash movement from operating, investing, and financing activities.

Question 4

When a bond is issued at a discount, the bond's coupon rate is:

Accepted Answer

Lower than the market interest rate

Answer

Bonds sell at a discount when their coupon rate is below prevailing market rates, making them less attractive at face value.

Question 5

Which ratio measures how efficiently a company uses its assets to generate sales?

Accepted Answer

Asset turnover ratio

Answer

Asset turnover ratio (Sales ÷ Total Assets) measures how effectively management uses assets to generate revenue.

(BMO) Business Management Officer Certification Practice Test