41. To evaluate the liquidity of a company, you should calculate the:

1 point

A. Current ratio.

B. Quick (acid test) ratio.

C. Net working capital.

D. A, B, C.

E. None of the above.

Clear selection

42. If it takes a business a long time to sell its inventory, it would be better to use the quick (acid test) ratio (vs the current ratio) to evaluate liquidity.

1 point

True

False

43. The higher the accounts receivable turnover, the higher the number of days it takes to collect the accounts receivable.

1 point

True

False

44. If the days to collect accounts receivable is significantly more than the standard credit terms, the situation would be considered:

1 point

A. Favorable.

B. Unfavorable.

45. If uncollectible accounts receivable have not been written off (are still included in the accounts receivable amount), then the days to collect accounts receivable can be overstated.

1 point

True

False

46. The lower the inventory turnover, the less likely it is that obsolete inventory is still on the company's books.

1 point

True

False

47. If a clothing retailer has four seasons (spring, summer, winter, fall), it would prefer an inventory turnover of least 4 times per year.

1 point

True

False

48. The lower the inventory turnover, the more likely it is that the store has too much inventory on hand and/or has obsolete inventory it can't sell.

1 point

True

False

49. The lower the inventory turnover, the longer it takes to sell the inventory.

1 point

True

False

50. If accumulated depreciation is less than 10% of the plant and equipment balances, the equipment is likely old and needs to be replaced.

1 point

A. True

B. False

51. Depreciation and amortization are expenses that are paid with cash.

1 point

A. True

B. False

52. The higher the accounts payable turnover, the faster a business pays its bills.

1 point

A. True

B. False

53. Having access to an unused line of credit indicates, that if needed, the company has some ability to borrow funds.

1 point

A. True

B. False

54. An advantage of having a high level of debt on the balance sheet is that it provides a safety cushion in case extra funds are needed for emergencies.

1 point

A. True

B. False

55. Incurring long-term debt to pay current expenses is a sign that the company has:

1 point

A. Matched short-term needs with short-term debt.

B. Not matched short-term needs with short-term debt.

56. Long-term liabilities in excess of the net book value of property, plant, and equipment (PPE) is a very positive sign that long-term needs are matched with long-term debt.

1 point

A. True

B. False

57. Excessive use of debt increases the risk of insolvency because interest and principal on debt must be paid per the terms of the agreement, while dividends on common stock do not have to be paid unless declared by the board of directors.

1 point

A. True

B. False

58. The higher the amount of stockholders' equity on the balance sheet, the more likely a business can survive current losses.

1 point

A. True

B. False

59. Assume a company has a ratio of (stockholders equity/total assets) equal to .05 (5%). If the company's assets decline in value by 10% due to operating losses or investment losses, then the company will be insolvent.

1 point

A. True

B. False

60. If a company has negative stockholders equity, it is technically insolvent.

1 point

A. True

B. False

61. Insolvent companies that can successfully issue additional equity interests or have access to additional debt can buy time to turnaround operations.

1 point

A. True

B. False

62. The lower the ratio of stockholders equity to total assets, the lower the risk of insolvency

1 point

A. True

B. False

63. All amounts on US financial statements are in dollars. The sales amount reported on the income statement is a result of (Price x Quantity).

1 point

A. True

B. False

64. For a fixed cost, the total amount doesn't change within relevant range.

1 point

A. True

B. False

65. For variable expenses, the total amount changes in a direct relationship with sales (or some other driver).

1 point

A. True

B. False

66. The statement of cash flows identifies cash flows from:

1 point

A. Operating activities.

B. Financing activities.

C. Investing activities.

D. All of the above.

67. For profitability (income) measures and ratios:

1 point

A. The higher the better.

B. The lower the better.

68. Prior year net income was $8,000,000. Current year net income is $10,000,000. What is the net income growth rate?

1 point

A. .20

B. .25

C. .80

D. 1.25

69. Which profitability measure is the largest amount:

1 point

A. EBITDA.

B. EBIT.

C. EBT.

C. Net income.

70. The higher the debt to assets ratio and debt to equity ratio, the less risk that long term creditors have of not getting paid.

1 point

A. True

B. False

71. The higher the times interest earned ratio, the less comfortable lenders are with being repaid.

1 point

A. True

B. False

72. A debt to equity ratio of 2 indicates a capital structure of 66 2/3% debt and 33 1/3% equity.

1 point

A. True

B. False

73. The yield on common stock can be increased by paying more dividends and/or if the market price per share falls.

1 point

A. True

B. False

74. If a manufacturing company's equipment is almost fully depreciated, it likely that additional investments in equipment will be necessary to ensure future profitability.

1 point

A. True

B. False

75. Given: Income = $120; Average investment of $400; Desired rate of return = 20%, what is the residual income?

1 point

A. $24

B. $80

C. $40

D. Can't be determined.

76. Liquidity measures evaluate the ability of a business to pay its bills on time.

1 point

True

False

Answer rating: 100% (QA)

The detailed answer for the above question is provided below 41 The correct answer is D A B C The current ratio quick acid test ratio and net working capital are all measures of a companys liquidity L... View the full answer