Answer Options:
a. True
b. False
Answer: a. True
Question: Last year, Delip Industries had (1) negative cash flow from operations, (2) a negative free cash flow, and (3) an increase in cash as reported on its balance sheet. Which of the following factors could explain this situation?
Answer Options:
a. The company had a sharp increase in its inventories.
b. The company had a sharp increase in its accrued liabilities.
c. The company sold a new issue of common stock.
d. The company made a large capital investment early in the year.
e. The company had a sharp increase in depreciation expenses.
Answer: c
Question: Other things held constant, the more debt a firm uses, the lower its profit margin will be.
Answer Options:
a. True
b. False
Answer: a. True
Question: The profit margin measures net income per dollar of sales.
Answer Options:
a. True
b. False
Answer: a. True
Question: If a firm is reporting its income in accordance with generally accepted accounting principles, then its net income as reported on the income statement should be equal to its free cash flow.
Answer Options:
a. True
b. False
Answer: False
Question: Suppose all firms follow similar financing policies, face similar risks, have equal access to capital, and operate in competitive product and capital markets. However, firms face different operating conditions because, for example, the grocery store industry is different from the airline industry. Under these conditions, firms with high profit margins will tend to have high asset turnover ratios, and firms with low profit margins will tend to have low turnover ratios.
Answer Options:
a. True
b. False
Answer: b. False
Question: The next-to-last line on the income statement shows the firm’s earnings, while the last line shows the dividends the company paid. Therefore, the dividends are frequently called “the bottom line.”
Answer Options:
a. True
b. False
Answer: False
Question: Although a full liquidity analysis requires the use of a cash budget, the current and quick ratios provide fast and easy-to-use estimates of a firm’s liquidity position.
a. True
b. False
Answer Options:
for Question 560
a. True
b. False
Answer: True
Question: Walter Industries’ current ratio is 0.5. Considered alone, which of the following actions would increase the company’s current ratio?
a. Borrow using short-term notes payable and use the cash to increase inventories.
b. Use cash to reduce accruals.
c. Use cash to reduce accounts payable.
d. Use cash to reduce short-term notes payable.
e. Use cash to reduce long-term bonds outstanding.
Answer: a. Borrow using short-term notes payable and use the cash to increase inventories.
Question: Free cash flow (FCF) is, essentially, the cash flow that is available for interest and dividends after the company has made the investments in current and fixed assets that are necessary to sustain ongoing operations.
Answer Options:
a. True
b. False
Answer: True