1. How does solvency differ from liquidity?

2. R. Davis Incorporated has a current ratio of 2.00. How would you interpret the current ratio for R. Davis Inc.?

3. Describe the difference in the interpretation of the current and quick ratios.

4. In what way does the cash conversion cycle affect liquidity?

5. Describe how the CCC combines information from the balance sheet and income statement.

6. Discuss the implications of a negative CCC.

7. Discuss the weaknesses of the solvency measures described in this chapter.

8. How would you describe the trend in the CCC for publicly traded firms?

9. Identify the relationship between the CCC and 1) DIH, 2) DSO, and 3) DPO.

10. If NWC is negative, then what does this imply about the current ratio?

11. Is it possible for the quick ratio to exceed the current ratio?

12. Andrieux Industries has a WCR of $10 million. Interpret this firm's WCR.

13. How would you interpret a DCH of 90 days?

14. Describe ways to increase the DCH.

15. How would you interpret a NLB of -$400,000?

16. What might decrease the NLB?

17. How would you interpret a of 0.50?

18. A firm currently has a of 1.80. Determine the effect of the following on (assuming all else constant): a. Decreased cash holdings b. A greater portion of the credit line is used c. Decreased average daily net cash flow d. Decreased standard deviation of daily net cash flow

19. What would be required for to fall below 0.00?

20. Discuss the trend in DCH