BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Net income represents cash available to pay dividends.
|
|
|
Net income represents sales minus operating expenses at a specific point in time.
|
|
|
Negative net income reduces a company’s cash balance.
|
|
|
Net income represents income that may be reinvested in the firm or distributed to its owners.
|
Detailed explanation-1: -Answer and Explanation: It is most correct to say that b) net income can be converted into a rough measure of cash flow by adding non-cash expenses, typically depreciation. Net income is found using the accrual method of accounting that counts revenues when they are earned and expenses when they are incurred.
Detailed explanation-2: -Retained earnings are also called earnings surplus and represent reserve money, which is available to company management for reinvesting back into the business. When expressed as a percentage of total earnings, it is also called the retention ratio and is equal to (1-the dividend payout ratio).
Detailed explanation-3: -Earnings available to common shareholders represents income that may be reinvested in the firm or distributed to its owners. Earnings available to common shareholders is equal to a corporation’s positive net cash flow over a given period, typically one year. Profits-to-Sales relationships are defined as profit margins.
Detailed explanation-4: -Any net income not paid to shareholders at the end of a reporting period becomes retained earnings. Retained earnings are then carried over to the balance sheet, reported under shareholder’s equity.