Answer:
Options
Question: Net operating working capital is equal to current assets minus the difference between current liabilities and notes payable. This definition assumes that the firm has no “excess” cash.
Answer:
Options:
Question: Considered alone, which of the following would increase a company’s current ratio?
Answer:
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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.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: If a firm sold some inventory on credit, its current ratio would probably not change much, but its quick ratio would increase.
Answer:
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Question: Which of the following statements is CORRECT?
Answer Choices:
a. The ratio of long-term debt to total capital is more likely to experience seasonal fluctuations than is either the DSO or the inventory turnover ratio.
b. If two firms have the same ROA, the firm with the most debt can be expected to have the lower ROE.
c. An increase in the DSO, other things held constant, could be expected to increase the total assets turnover ratio.
d. An increase in the DSO, other things held constant, could be expected to increase the ROE.
e. An increase in a firm’s total debt to total capital ratio, with no changes in its sales or operating costs, could be expected to lower its profit margin.
Answer:
e
Question: High current and quick ratios always indicate that the firm is managing its liquidity position well.
Answer:
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Question: An increase in accounts payable represents an increase in net cash provided by operating activities just like borrowing money from a bank. An increase in accounts payable has an effect similar to taking out a new bank loan. However, these two items show up in different sections of the statement of cash flows to reflect the difference between operating and financing activities.
Answer:
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Question: In general, it’s better to have a low inventory turnover ratio than a high one, as a low ratio indicates that the firm has an adequate stock of inventory relative to sales and thus will not lose sales as a result of running out of stock.
Answer:
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Question: A decline in a firm’s inventory turnover ratio suggests that it is improving both its inventory management and its liquidity position, i.e., that it is becoming more liquid.
Answer Choices:
a. True
b. False
Answer:
b. False
Question: An increase in accounts payable represents an increase in net cash provided by operating activities just like borrowing money from a bank. An increase in accounts payable has an effect similar to taking out a new bank loan. However, these two items show up in different sections of the statement of cash flows to reflect the difference between operating and financing activities.
Answer:
Options:
Question: The current and quick ratios both help us measure a firm’s liquidity. The current ratio measures the relationship of the firm’s current assets to its current liabilities, while the quick ratio measures the firm’s ability to pay off short-term obligations without relying on the sale of inventories.
Answer:
Options: