Question 1

Which of the following refers to the amount of debt versus equity a firm has on its balance sheet?
A)Capital coverage
B)Capital structure
C)Debt structure
D)Financial structure

Accepted Answer

Capital structure refers to the way a company finances its operations by using a combination of debt and equity. It represents the proportion of debt and equity that a company has on its balance sheet. Choices A, C and D are not commonly used terms in finance to refer to this concept.

Question 2

Which ratio measures a firm's ability to pay short-term obligations with its available cash and market securities?
A)Cash
B)Current
C)Internal-growth
D)Quick or acid test

Accepted Answer

A

Question 3

Which of the following ratios measure how efficiently a firm uses its assets, as well as how efficiently the firm manages its accounts payable?
A)Asset management
B)Cash
C)Internal-growth
D)Quick or acid test

Accepted Answer

The asset management ratios, such as asset turnover and inventory turnover, measure how efficiently a firm uses its assets. Additionally, the accounts payable turnover ratio can provide insight into how well a firm is managing its accounts payable. The other options (B, C, and D) do not directly measure these aspects of a firm's operations.

Question 4

Which type of ratio measures the dollars of current assets available to pay each dollar of current liabilities?
A)Cross-section
B)Current
C)Internal-growth
D)Quick or acid test

Accepted Answer

The answer of Which type of ratio measures the dollars...

Question 5

Which of these is NOT considered a coverage ratio?
A)Cash coverage ratio
B)Current ratio
C)Fixed-charge coverage ratio
D)Times interest earned

Accepted Answer

The current ratio is a liquidity ratio, not a coverage ratio. Coverage ratios measure a company's ability to meet its debt obligations, while liquidity ratios measure a company's ability to pay its short-term debts. The other options listed are all coverage ratios.

Question 6

Which of these statements is true?
A)The age of a firm's cash will affect the current ratio level.
B)The age of a firm's accounts receivable will affect the current ratio level.
C)The age of a firm's fixed assets will affect the fixed asset turnover ratio level.
D)The age of a firm's fixed assets will affect the current ratio level.

Accepted Answer

The answer of Which of these statements is true?
A)The age...

Question 7

Which of the following refer to ratios that measure the relationship between a firm's liquid (or current) assets and its current liabilities?
A)Cross-section
B)Internal growth
C)Liquidity
D)Market value

Accepted Answer

Liquidity ratios measure a company's ability to pay off short-term debt obligations using its current assets. This includes the current ratio, quick ratio or acid-test ratio, and cash ratio, among others. Therefore, option C is the correct answer.

Question 8

Which of these statements is true?
A)A low inventory turnover ratio or a low days' sales in inventory is a sign of good inventory management.
B)A high inventory turnover ratio or a low days' sales in inventory is a sign of good inventory management.
C)A low inventory turnover ratio or a high days' sales in inventory is a sign of good inventory management.
D)A high inventory turnover ratio or a high days' sales in inventory is a sign of good inventory management.

Accepted Answer

A high inventory turnover ratio or a low days' sales in inventory is a sign of good inventory management because it indicates that the company is effectively managing its inventory and selling its products quickly, which leads to better cash flow and profit margins. A low inventory turnover ratio or a high days' sales in inventory suggests that the company is holding onto inventory for too long and may be losing money on carrying costs, storage fees, and potential obsolescence.

Question 9

Which statement is true?
A)The less liquid assets a firm holds, the less likely it is that the firm will experience financial distress.
B)The lower the liquidity ratios, the less liquidity risk a firm has.
C)Liquid assets generate profits for the firm.
D)Extremely high levels of liquidity guard against liquidity crises, but at the cost of lower returns on assets.

Accepted Answer

Extremely high levels of liquidity can guard against liquidity crises but these levels come at a cost of lower returns on assets. This occurs because holding liquid assets that do not generate returns can reduce the overall profitability of the firm. Therefore, the statement in option A is false as holding less liquid assets can increase the likelihood of financial distress. Option B is also false as lower liquidity ratios indicate higher liquidity risk, not lower. Option C is also false as liquid assets themselves do not generate profits for the firm, but they can be used for investment or operational purposes to generate profits.

Question 10

Which of the following measures the number of days accounts receivable are held before the firm collects cash from the sale?
A)Accounts receivable turnover
B)Average collection period
C)Average payment period
D)Accounts payable turnover

Accepted Answer

The average collection period measures the number of days it takes for a firm to collect cash from the sale of its accounts receivable. A high average collection period can indicate that the firm is having difficulty collecting payment, which can impact its cash flow and overall financial health. The other options listed measure different aspects of a firm's accounts receivable and accounts payable processes.

Question 11

Which of the following measures the number of days that the firm holds accounts payable before it has to extend cash to buy raw materials?
A)Accounts receivable turnover
B)Average collection period
C)Average payment period
D)Accounts payable turnover

Accepted Answer

The average payment period measures the number of days that a firm holds accounts payable before having to extend cash to buy raw materials. A lower average payment period indicates more efficient management of accounts payable, as the firm is able to hold onto its cash for a longer period of time. The other answer choices measure different aspects of a firm's financial operations.

Question 12

Which type of ratio measures a firm's ability to pay off short-term obligations without relying on inventory sales?
A)Cash
B)Current
C)Internal-growth
D)Quick or acid test

Accepted Answer

The quick or acid test ratio measures a firm's ability to pay off short-term obligations without relying on inventory sales. It is calculated by subtracting inventory from current assets and dividing the result by current liabilities. This ratio is more conservative than the current ratio as it excludes inventory, which is the least liquid current asset. A higher quick ratio indicates a better ability to meet short-term obligations.

Question 13

Which of the following measures the number of dollars of sales produced per dollar of fixed assets?
A)Fixed asset to working capital ratio
B)Fixed asset turnover ratio
C)Fixed asset management ratio
D)Sales to working capital ratio

Accepted Answer

Fixed asset turnover ratio measures the efficiency with which the company is using its fixed assets to generate sales. It is calculated by dividing sales by the value of fixed assets.

Question 14

Which ratio measures the number of dollars of sales produced per dollar of inventory?
A)Asset management
B)Cash
C)Internal-growth
D)Inventory turnover

Accepted Answer

The ratio that measures the number of dollars of sales produced per dollar of inventory is the inventory turnover ratio. It is calculated by dividing sales by inventory. This ratio is a measure of how efficiently a company is managing its inventory and is a key indicator of financial performance. A high turnover ratio is generally considered favorable as it indicates that the company is effectively managing its inventory and generating sales from it.

Question 15

Which of these ratios show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm?
A)Liquidity
B)Coverage
C)Financial
D)Profitability

Accepted Answer

Profitability ratios reflect the combined effects of liquidity, asset management, and debt management on a firm's overall operational results.

Question 16

Which ratio measures the percentage of total assets financed by debt?
A)Debt
B)Debt-to-equity
C)Equity multiplier
D)Liquidity

Accepted Answer

The debt ratio measures the percentage of total assets that are financed by debt.

Question 17

For publicly traded firms, which of these ratios measure what investors think of the company's future performance and risk?
A)Liquidity ratios
B)Market value ratios
C)Price value ratios
D)Profitability ratios

Accepted Answer

Market value ratios, such as price-to-earnings ratio and dividend yield, are used to analyze a company's future performance and risk based on the market's perception of the company. These ratios take into account the company's stock price and market capitalization, which are indicators of how well investors think the company is currently performing and its potential for growth or decline in the future. The other ratios, such as liquidity ratios, profitability ratios, and price value ratios, are important metrics for evaluating a company's financial health, but they do not specifically measure investor sentiment towards the company's future performance and risk.

Question 18

Which of these statements is true?
A)In general, the lower the total asset turnover and the lower the capital intensity ratio, the more efficient the overall asset management of the firm will be.
B)In general, the lower the total asset turnover and the higher the capital intensity ratio, the more efficient the overall asset management of the firm will be.
C)In general, the higher the total asset turnover and the lower the capital intensity ratio, the more efficient the overall asset management of the firm will be.
D)In general, the higher the total asset turnover and the higher the capital intensity ratio, the more efficient the overall asset management of the firm will be.

Accepted Answer

A higher total asset turnover implies that the firm generates more revenue for each dollar invested in assets, which is indicative of efficient asset utilization. A lower capital intensity ratio implies that the firm requires less investment in fixed assets to generate revenue, which is also indicative of efficient asset management. Therefore, higher total asset turnover and lower capital intensity ratio indicate more efficient asset management.

Question 19

Which of the following measures the operating return on the firm's assets, irrespective of financial leverage and taxes?
A)Basic earnings power ratio
B)Profit margin
C)Return on assets
D)Return on equity

Accepted Answer

The basic earnings power ratio measures the operating return on the firm's assets without considering the effects of financial leverage and taxes.

Question 20

Which of these ratios measure the extent to which the firm uses debt (or financial leverage) versus equity to finance its assets?
A)Debt management ratios
B)Equity ratios
C)Financial ratios
D)Liquidity ratios

Accepted Answer

Debt management ratios, also known as leverage ratios, measure the extent to which a firm uses debt financing. These ratios include debt-to-equity ratio, debt-to-assets ratio, and interest coverage ratio. Therefore, this is the best answer as it directly refers to the use of debt versus equity.

Quiz 3: Analyzing Financial Statements

Which of the following refers to the amount of debt versus equity a firm has on its balance sheet?

Which ratio measures a firm's ability to pay short-term obligations with its available cash and market securities?

Which of the following ratios measure how efficiently a firm uses its assets, as well as how efficiently the firm manages its accounts payable?

Which type of ratio measures the dollars of current assets available to pay each dollar of current liabilities?

Which of these is NOT considered a coverage ratio?

Which of these statements is true?

Which of the following refer to ratios that measure the relationship between a firm's liquid (or current) assets and its current liabilities?

Which of these statements is true?

Which statement is true?

Which of the following measures the number of days accounts receivable are held before the firm collects cash from the sale?

Which of the following measures the number of days that the firm holds accounts payable before it has to extend cash to buy raw materials?

Which type of ratio measures a firm's ability to pay off short-term obligations without relying on inventory sales?

Which of the following measures the number of dollars of sales produced per dollar of fixed assets?

Which ratio measures the number of dollars of sales produced per dollar of inventory?

Which of these ratios show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm?

Which ratio measures the percentage of total assets financed by debt?

For publicly traded firms, which of these ratios measure what investors think of the company's future performance and risk?

Which of these statements is true?

Which of the following measures the operating return on the firm's assets, irrespective of financial leverage and taxes?

Which of these ratios measure the extent to which the firm uses debt (or financial leverage) versus equity to finance its assets?