FIN 6352 Financial Management FMQuiz04 Dr. Xavier Garza Gómez University of Houston-Victoria (Extra Credit) FIN 6352 Financial Management Review Quiz for Chapter 4 – Analysis of Financial Statements True-False 1. Although a full liquidity analysis requires the use of a cash budget, the current and quick ratios provide fast and easy-to-use measures of a firm's liquidity position. a. True b. False 2. High current and quick ratios always indicate that a firm is managing its liquidity position well. a. True b. False 3. The inventory turnover ratio and days sales outstanding (DSO) are two ratios that are used to assess how effectively a firm is managing its assets. a. True b. False Multiple Choice: Concepts 4. Companies HD and LD have the same sales, tax rate, interest rate on their debt, total as-sets, and basic earning power. Both companies have positive net incomes. Company HD has a higher debt ratio and, therefore, a higher interest expense. Which of the following statements is CORRECT? a. Company HD pays less in taxes. b. Company HD has a lower equity multiplier. c. Company HD has a higher ROA. d. Company HD has a higher times interest earned (TIE) ratio. e. Company HD has more net income. 5. Which of the following statements is CORRECT? a. If a firm has the highest price/earnings ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president. b.
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