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conceptual_exam_problems - d Issue long-term debt and use...

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Finance 254 Conceptual Problems – Financial Ratio Analysis 1. Which one of the following questions about a firm’s operations cannot be answered by analyzing financial ratios? a. Are the owners receiving an adequate return on their investment? b. How much should the firm invest in fixed-assets in the next year? c. How quickly are the firm’s liquid assets being converted into cash? d. How is the firm financing its assets? 2. The acid-test (quick) ratio of a firm would be unaffected by which if the following? a. Land held for investment is sold for cash b. Equipment is purchased, financed by long-term debt c. Inventories are sold for cash d. Inventories are sold on a credit basis 3 . Which of the following actions will increase a company’s quick ratio? a. Reduce inventories and use the proceeds to reduce long-term debt b. Reduce inventories and use the proceeds to reduce current liabilities c. Issue short-term debt and use the proceeds to purchase inventory
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Unformatted text preview: d. Issue long-term debt and use the proceeds to purchase fixed assets e. Issue equity and use the proceeds to purchase inventory 4. Which of the following financial ratios is the best measure of the operating effectiveness of a firm’s management? a. current ratio b. net profit margin c. quick ratio d. return on investment 5. If a company’s average collection period is higher than the industry average, then the company may be? a. enforcing credit conditions upon its customers which are too stringent b. allowing its customers too much time to pay their bills c. too tough in collecting accounts d. a and c 6. Which of the following ratios would be the most useful to assess the risk associated with a firm being able to liquidate its short-term line of credit? a. Return on equity b. The acid test ratio c. The operating profit margin d. The fixed asset turnover The following questions are taken from the Fall 2001 midterm exam...
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