Economics and Accounting Flashcards
6 cards from real IMC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Economics and Accounting flashcards as text
What does the price-to-earnings (P/E) ratio indicate about a company's shares?
Answer: How much investors are willing to pay per pound of earnings
The P/E ratio divides the current share price by earnings per share, showing how much investors are prepared to pay for each pound of the company's earnings. A higher P/E may suggest investors expect higher future growth.
In the context of monetary policy, what is 'quantitative easing' (QE)?
Answer: The central bank purchasing government bonds to inject money into the economy
Quantitative easing involves the central bank (Bank of England) creating new money electronically to purchase government bonds and other securities. This increases the money supply, lowers long-term interest rates, and encourages lending and investment.
Which financial statement shows a company's financial position at a specific point in time?
Answer: The statement of financial position (balance sheet)
The statement of financial position (balance sheet) provides a snapshot of a company's assets, liabilities, and equity at a specific date. Unlike the income statement and cash flow statement, which cover a period, the balance sheet reflects a moment in time.
What is the effect of depreciation on a company's financial statements?
Answer: It reduces the carrying value of an asset and is charged as an expense
Depreciation systematically allocates the cost of a tangible asset over its useful life. It reduces the asset's carrying value on the balance sheet and is recorded as an expense on the income statement, reducing reported profit but not affecting actual cash flow.
A recession is technically defined in the UK as:
Answer: Two consecutive quarters of negative GDP growth
A technical recession in the UK is commonly defined as two consecutive quarters (six months) of negative GDP growth. A single quarter of contraction alone does not meet this threshold.
Which of the following would increase a company's return on equity (ROE)?
Answer: Increasing net profit while shareholders' equity remains constant
ROE = Net Profit / Shareholders' Equity. Increasing net profit while equity stays the same directly increases the ratio. Issuing new shares increases equity (denominator), which would reduce ROE. While paying dividends reduces equity, it doesn't increase net profit.