Chapter 2--Analysis of Fina - Copy

A firms current ratio has steadily increased over the

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56. A firm's current ratio has steadily increased over the past 5 years, from 1.9 five years ago to 3.8 today. What would a financial analyst be most justified in concluding? A. The firm's fixed assets turnover probably has improved. B. The firm's liquidity position probably has improved. C. The firm's stock price probably has increased. D. Each of the above is likely to have occurred. E. The analyst would be unable to draw any conclusions from this information. 57. Which of the following actions will cause an increase in the quick ratio in the short run?
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58. Which of the following statements is correct? 59. As a short-term creditor concerned with a company's ability to meet its financial obligation to you, which one of the following combinations of ratios would you most likely prefer? Current Debt ratio TIE ratio 60. Which of the following statements about ratio analysis is incorrect ? A. Classifying a large, well-diversified firm into a single industry often is difficult because many of the firm's divisions are involved with different products from different industries. B. As a rule of thumb, it is safe to conclude that any firm with a current ratio greater than 1.0 should be able to meet its current obligations¾that is, pay bills that come due in the current period. [Current ratio = (Current assets) / (Current liabilities)] C. Sometimes firms attempt to use "window dressing" techniques to make their financial statements look better than they actually are in the current period. D. Computing the values of the ratios is fairly simple; the toughest and most important part of ratio analysis is interpretation of the values derived from the computations. E. General conclusions about a firm should not be made by examining one or a few ratios¾ratio analysis should be comprehensive.
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