Read the summary and the most important questions on CMA Review Part 2: Strategic Financial Management

• 1 Liquidity, Solvency, and Leverage Ratios

• The attitude of an entity concerning risk is best explained by what kind of ratios?

  Management's intent with respect to risk is best explained by measures of Solvency such as Capital Structure Ratios and Earnings Coverage Ratios.
  [Adaptive Quiz 1 - Q19]

• 1.1 Common-Size Financial Statements

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• What are useful techniques for assessing the persistence of the firm's revenues?

  Useful techniques for assessing the persistence of the firm's revenues are:
  
  (1) Trend percentage analysis.
  (2) Evaluation of MD&A (Management's Discussion and Analysis, a section of the annual report). 

• 1.2 Liquidity

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• What are the Liquidity ratios you know?How many? What are the distinguishing features?

  
  For the CMA exam 5 ratios are relevant:
  - Current ratio
  - Quick ratio aka acid-test
  - Cash ratio
  - Cash flow ratio
  - Net working capital ratio

• 1.3 Solvency

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• What are Capital Structure Ratios?

  These ratios report the relative proportions of debt and equity in a firm's capital structure at a given reporting date.

• 1.4 Leverage

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• What is a general statement of leverage (formula)?

  
                                                   Pre-fixed-cost income amount
  Degree of Leverage  =  _______________________________________
                                                    Post-fixed-cost income amount

• What is the formula for a single period?Degree of Operating Leverage (DOL)

                    Contribution Margin
  DOL = _____________________________
                  Operating Income or EBIT

• What is the formula for the percentage-change version of DOL?Degree of Operating Leverage (%∆DOL)What does it express?

  
                          %∆ in operating income or EBIT
  DOL (%∆) =  _____________________________
                                        %∆ in sales
  
  It does express the percentage change in EBIT generated by each 1% change in sales.

• What is the formula for a single period?Degree of Financial Leverage (DFL)

               EBIT
  DFL = ________________
                EBT

• What is the formula for the percentage-change version of DFL?Degree of Financial Leverage (%∆DFL)What does it express?

  
                          %∆ in net income
  DFL (%∆) =  _____________________________
                                %∆ in EBIT
  
  It does express the percentage change in net income generated by each 1% change in EBIT. 

• 5 Financial Markets and Financing

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• 5.1.1 Aspects of Financial Markets

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• In which two ways can transfers of funds be managed?

  Transfers of funds may be either:
  

  1. Direct, or
     
  2. through intermediate entities, such as banks