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Module_4_Multiple_Choice_Ans

Module_4_Multiple_Choice_Ans - Module 4 Multiple Choice...

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Module 4 Multiple Choice MC4-1 Turnover rates and company value LO1 All things equal, increasing turnover, increases a. Sales b. Expenses c. Assets d. Shareholder value Solution: d. All things equal, increasing turnover rates increases ROE and, hence, stock shareholder value. MC4-2 Liquidity LO3 Liquidity refers to a. The life cycle of the company b. The amount of receivables the company has in the balance sheet c. The amount of financial leverage d. None of the above Solution: d. Liquidity refers to cash, the amount on hand, the amount generated from operating activities, and the amount that can be raised on relatively short notice. MC4-3 Ratios LO2 Which one of the following ratios does not involve assets? a. Account Receivable Turnover b. Current Ratio c. Account Payable Turnover d. Inventory Turnover Solution: c. Accounts Payable Turnover involves trade credit, which is a liability, while the other ratios involve assets. MC4-4 Inventory turnover rate LO2 Which ratio provides an indication of the salability of the company’s products? a. Account Receivables Turnover b. Average Collection Period c. Average Inventory Days Outstanding d. Accounts payable turnover rate Solution: c. The average inventory days outstanding provides an indication of the period of time that inventories remain unsold, on average. Trends in this metric can provide an indication of the salability of the company’s products. ©Cambridge Business Publishers, 2008 Financial & Managerial Accounting for MBAs, 1 st Edition
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MC4-5 Current ratio LO3 The current ratio is a measure of: a. Solvency b. Bankruptcy position c. Short-term debt paying ability d. Leverage Solution: c. The current ratio is a measure of short-term debt paying ability MC4-6 Liquidity analysis LO3
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