Deck 2: Analysis of Solvency, liquidity, and Financial Flexibility

Question 1

A negative value for the net liquid balance indicates reduced financial flexibility and

A)an increased dependence on outside financing
B)an increased sustainable growth rate
C)that cash and equivalents are growing relative to the company's use of short-term financing
D)that bank borrowing is growing relative to other arranged short-term financing

Answer 1

A

Question 2

The degree to which current liabilities are covered in the event of liquidation is best captured by the ___________________.

A)current ratio
B)net liquid balance
C)working capital requirement / sales ratio
D)current liquidity index
E)cash conversion period

Answer 2

A

Question 3

A survey of the Fortune 1000 companies found that _____________ is (are)valuable for the monitoring,management,and control of liquidity. I ratio analysis
II receivables monitoring
III inventory monitoring
IV cash flow projections
V strong relations with banks

A)I,II,III,IV
B)I,II,III,V
C)II,III,IV
D)II,III,IV
E)II,III,IV,V

Answer 3

E

Question 4

The basic ingredients of liquidity are:

A)Amount
B)time
C)cost
D)'a' and 'c'
E)'a' 'b' and 'c'

Question 5

In the statement of cash flows,an increase in payments of interest to lenders would represent an additional

A)cash outflow in the operating activities section
B)cash outflow in the investing activities section
C)cash outflow in the financing activities section
D)cash outflow handled in a footnote to the statement

Question 6

The extent to which a company's assets exceed its liabilities is properly referred to as:

A)liquidity
B)solvency
C)financial flexibility
D)the net liquid balance

Question 7

A given period's net cash from operations differs from that period's net income due to

A)the depreciation expense,depletion,and amortization for the period
B)the change in accounts receivable over the period
C)the change in gross fixed assets over the period
D)a and b
E)a,b,and c

Question 8

Days inventory held is a measure of the

A)average time elapsing from the time an order is placed until it is shipped
B)average inventory level multiplied by the number of days in the period
C)average length of time an inventoried item is in stock before it is sold
D)none of the above

Question 9

An increase in days sales outstanding (DSO),all other things equal,would ___________ the cash conversion period and reflect ________________ liquidity.

A)increase,increased
B)increase,decreased
C)decrease,increased
D)decrease,decreased

Question 10

An increase in days payable outstanding,all other things equal,would ___________ the cash conversion period and reflect ________________ liquidity.

A)increase,increased
B)increase,decreased
C)decrease,increased
D)decrease,decreased

Question 11

An increase in days inventory held,all other things equal,would ___________ the cash conversion period and reflect ________________ liquidity.

A)increase,increased
B)increase,decreased
C)decrease,increased
D)decrease,decreased

Question 12

All other factors constant,the greater the working capital requirement to sales ratio (WCR / S),the _____________ the reliance on _______________ funds given a change in sales.

A)greater,external debt and equity
B)lesser,external debt and equity
C)greater,spontaneous
D)lesser,bank-provided

Question 13

For a company with only finished goods inventories,purchases can be estimated with the formula

A)(Beginning Inventory - Ending Inventory)- Cost of Goods Sold
B)(Beginning Inventory - Ending Inventory)+ Cost of Goods Sold
C)(Ending Inventory - Beginning Inventory)- Cost of Goods Sold
D)(Ending Inventory - Beginning Inventory)+ Cost of Goods Sold

Question 14

A company such as W.T.Grant which perennially experiences deficit cash flow from operating activities must delay investment projects and generally

A)increases its dividends to keep stockholders satisfied
B)increases its wages and salaries to retain employs
C)decreases its depreciation expense to conserve much-needed cash
D)increases its use of external funds

Question 15

Lambda is developed from a function of the likelihood that a firm will exhaust its

A)Its cash resources
B)Its resources in total assets
C)Its liquid resources
D)Its resources in fixed assets

Question 16

The current ratio and the quick ratio are best characterized as ________________ ratios.

A)Liquidity
B)Solvency
C)financial flexibility
D)net liquid balance

Question 17

The ability of a company to augment its future cash flows,cover unforeseen cash needs,or take advantage of unforeseen opportunities,is referred to as:

A)liquidity
B)solvency
C)financial flexibility
D)the net liquidity balance

Question 18

Sustainable growth rate is the sales growth rate that

A)requires new outside debt
B)can be supported by the firm's current/ target financial policies
C)requires new external equity
D)can be achieved by the firm's marketing department

Question 19

A net increase in cash and equivalents from the 2002 statement of cash flows is equivalent to

A)the cash generated by operations for 2002
B)the change in cash and equivalents from 2001 to 2002 balance sheets
C)the change in retained earnings balances from 2001 to 2002 balance sheets
D)the net cash provided in 2002 by external funds