Question 1

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 number of dollars of sales produced per dollar of fixed assets. It indicates the efficiency of a company in generating revenue from its invested fixed assets.

Question 2

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 measures a company's ability to pay off its short-term obligations with its current assets. It is not a coverage ratio, which focuses on a company's ability to cover its debt or other expenses. The other options (A, C, D) are all coverage ratios: the cash coverage ratio measures a company's ability to cover its interest payments with its cash flow; the fixed-charge coverage ratio measures a company's ability to cover its fixed expenses (such as rent and utilities) with its earnings; and the times interest earned ratio measures a company's ability to cover its interest payments with its earnings before interest and taxes.

Question 3

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 may prevent a liquidity crisis, but keeping too much cash or other liquid assets may lead to lower returns on assets. Therefore, it is important to find a balance between holding enough liquid assets to prevent financial distress and not holding too much that it negatively affects the firm's profitability. Choices A and B are incorrect because higher liquidity ratios indicate a higher ability to meet short-term obligations, so they provide a cushion against financial distress and reduce liquidity risk. Choice C is inaccurate since liquid assets do not generate profits, but they provide a measure of security for the firm.

Question 4

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 measure the extent to which a company uses debt versus equity to finance its assets. Examples of debt management ratios include debt-to-equity ratio, debt-to-capital ratio, and interest coverage ratio. Equity ratios, financial ratios, and liquidity ratios all measure different aspects of a company's financial health, but do not specifically focus on debt versus equity financing.

Question 5

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

Average collection period measures the number of days accounts receivable are held before the firm collects cash from the sale. Accounts receivable turnover measures how often a company collects its accounts receivable in a certain period of time. Average payment period measures how long a company takes to pay its own debts to suppliers. Accounts payable turnover measures how often a company pays its accounts payable in a certain period of time.

Question 6

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 it takes for a company to pay its accounts payable.

Question 7

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 show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm. These ratios measure the firm's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time.

Question 8

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

The answer of Which ratio measures a firm's ability to...

Question 9

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 total asset turnover and inventory turnover, measure how efficiently a firm is using its assets. Additionally, the accounts payable turnover ratio, which is a part of the asset management ratios, measures how efficiently the firm is managing its accounts payable. The other options (cash, internal-growth, quick or acid-test) do not specifically measure asset efficiency or accounts payable management.

Question 10

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 current ratio measures the dollars of current assets available to pay each dollar of current liabilities, indicating a company's ability to pay its short-term obligations with its short-term assets.

Question 11

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

Inventory turnover measures the number of times inventory is sold and replaced over a period of time, indicating how efficiently a company is managing its inventory. Dividing the total sales by the average inventory for the same period gives the inventory turnover ratio, which measures how many dollars of sales are generated per dollar of inventory.

Question 12

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 (BEP) ratio measures the operating return on the firm's assets, ignoring the effects of financial leverage and taxes. It focuses on the firm's ability to generate earnings from its operations before the influence of financial structure and income taxes, providing a clear view of the operational efficiency of the firm's assets.

Question 13

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 are designed to measure a firm's ability to meet its short-term obligations. They compare a company's liquid assets to its current liabilities. Examples of common liquidity ratios include the current ratio and the quick ratio.

Question 14

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 answer of Which ratio measures the percentage of total...

Question 15

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 composition of a company's financial resources, particularly the ratio of debt to equity. It is an important consideration for investors and lenders, as it indicates the level of risk associated with a company's financial position. Options A, C, and D may relate to an aspect of a company's financial structure, but they do not specifically refer to the balance between debt and equity.

Question 16

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 only takes into account the most liquid assets, such as cash and accounts receivable, and ignores inventory since it may take time to sell and convert into cash. Choice A, cash ratio, only measures a firm's ability to pay off current liabilities with cash on hand. Choice B, current ratio, includes inventory in the calculation and doesn't necessarily reflect the firm's ability to quickly pay off short-term obligations. Choice C, internal-growth ratio, is not a commonly used financial ratio and is not relevant to the question.

Question 17

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 indicates that a company is efficiently managing its inventory by quickly selling its products and replenishing its stock, leading to increased profitability and reduced carrying costs. Therefore, option B is the correct statement.

Question 18

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...

Question 19

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, earnings per share growth, and dividend yield, are used by investors to evaluate a company's future performance and risk. They reflect the market's sentiment towards the company and its potential for growth, profitability, and stability in the future.

Question 20

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 ratio indicates that a firm is generating more revenue from its assets, which is a sign of efficiency in asset management. A lower capital intensity ratio indicates that a firm is able to generate revenue with less investment in fixed assets, which also suggests efficiency in asset management. Therefore, a higher total asset turnover and a lower capital intensity ratio are both indicators of efficient asset management.

Quiz 3: Analyzing Financial Statements

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

Which of these is NOT considered a coverage ratio?

Which statement is true?

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

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

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

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

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

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

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

Which of these statements is true?

Which of these statements is true?

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?