Which of the Following Best Represents the Stream of Income

question 11

Multiple Choice

Which of the following best represents the stream of income that is available to common stockholders?

• A)Net profit after tax and after preferred dividend payments
• B)Earnings before interest and taxes
• C)Gross profit
• D)Operating profit

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Definitions:

Spontaneously Generated Funds

Funds generated if a liability account increases spontaneously (automatically) as sales increase. An increase in a liability account is a source of funds; thus, funds have been generated. Two examples of spontaneous liability accounts are accounts payable and accrued wages. Note that notes payable, although a current liability account, is not a spontaneous source of funds since an increase in notes payable requires a specific action between the firm and a creditor.

AFN Formula

Additional Funds Needed formula, a financial tool used to estimate the additional amount of financing a firm will require in the future.

Forecasting Method

Techniques used to predict future aspects of a business or the economy, from sales to macroeconomic trends.

AFN Formula

Additional Funds Needed formula; a financial model that projects the additional financing required by a firm to support its desired level of growth.