1. The financial markets allocate capital to corporations by
a)reflecting expectations of the market participants in the prices of the corporation's securities.
b)requiring higher returns from companies with lower risk than their competitors
c)rewarding companies with expected high returns with lower relative stock prices
d)relying on the opinion of investment bankers
2. The best indication of the operational efficiency of management is
a)net income.
b)earnings per share.
c)earnings before interest and taxes (EBIT).
d)gross profit.
3. The extent to which inventory financing may be used depends on
a)marketability of pledged goods.
b)price stability of goods.
c)perishability of goods.
d)all of the above
1. The correct answer is a) reflecting expectations of the market participants in the prices of the corporation's securities. Financial markets, such as stock markets, allow investors to buy and sell securities (such as stocks) of corporations. The prices of these securities are determined by the supply and demand dynamics in the market, which reflect the expectations and beliefs of market participants. When investors believe that a corporation has promising prospects, they demand more of its securities, driving up the price. This increased price signals to the corporation that there is capital available to invest in its operations and growth.
To understand this concept, you can study how financial markets work, including how prices are determined based on supply and demand dynamics, and how expectations of market participants influence those prices.
2. The best indication of the operational efficiency of management is c) earnings before interest and taxes (EBIT). EBIT is a measure of a company's profitability that looks at its earnings before accounting for interest and taxes. By looking at EBIT, investors and analysts can assess how well a company is generating profits from its operations, without the influence of financial factors like interest expenses and tax obligations.
To understand how EBIT is calculated and why it is a useful measure of operational efficiency, you can study financial statements and financial ratios used for performance analysis.
3. The correct answer is d) all of the above. The extent to which inventory financing can be used depends on various factors related to the goods being financed.
The marketability of pledged goods refers to how easily they can be sold or converted into cash. If the goods have high marketability, it means they are in demand and can be easily sold, making them suitable for financing.
The price stability of goods refers to how stable the prices of the goods are. If the prices are stable, it reduces the risk for lenders or financiers, making it more likely for the goods to be financed.
The perishability of goods refers to whether the goods are subject to spoilage or deterioration over time. Perishable goods may have a limited shelf life, which can limit their suitability for inventory financing.
To understand inventory financing and how these factors come into play, you can study topics such as supply chain management, inventory management, and financial concepts related to managing assets and working capital.