MGNT 3125
Fall 2010
Dr. Amine Khayati
Chapter 4 Review questions
1
The ratios that measure the firm’s ability to pay its bills over the shortrun are called:
a Leverage ratios
b Liquidity ratios
c Profitability ratios
d Turnover rates
2
The ratios that are intended to address the firm’s longrun ability to meet its obligation
are called:
a Profitability ratios
b Liquidity ratios
c Turnover ratios
d Leverage ratios
3
Asset Management ratios are defined as those ratios that are intended to describe how
efficiently, or intensively, a firm uses its:
a assets to generate net income
b assets to generate sales
c equity to generate assets
d equity to generate net income
4
Which of the following is a correct interpretation of a profit margin of 0.15?
a For each $1 of sales, the firm earns fifteen cents in net income
b For each $1 of
net income, the firm generate $15 in sales
c For each $1 of sales, the firm earns 15 cents before operating income
d It takes $150 in sales to generate $1 in net income
5
The set of ratios that measures how efficiently a firm manages its operation by
focusing on the net income are called:
a Financial leverage ratios
b Profitability ratios
c Liquidity ratios
d Asset management ratios
6
The ratios that involve the firm current share price are referred to as:
a Market value ratios
b Profitability ratios
c Financial leverage ratios
d The return on equity ratio
7
A current ratio of less than 1.0 means that the firm currently has:
a Less total assets than longterm debts
1
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View Full Documentb More debts due within the next year than assets that should convert to cash within that
same time period
c A positive net working capital and a quick ratio that is also less than 1.0
d Sufficient shortterm assets to meet its shortterm obligations.
8
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 Spring '08
 Warsi
 Leverage, Liquidity, Net Income, Financial Ratio, Generally Accepted Accounting Principles, total assets, Dr. Amine Khayati

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