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Corporate Finance Study Set 2

Business

Quiz 3 :

Analysis of Financial Statements

Quiz 3 :

Analysis of Financial Statements

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A firm wants to strengthen its financial position.Which of the following actions would increase its quick ratio?
Free
Multiple Choice
Answer:

Answer:

B

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Ratio analysis involves analyzing financial statements in order to appraise a firm's financial position and strength.
Free
True False
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Answer:

True

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A decline in a firm's inventory turnover ratio suggests that it is managing its inventory more efficiently and also that its liquidity position is improving, i.e., it is becoming more liquid.
Free
True False
Answer:

Answer:

False

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Although a full liquidity analysis requires the use of a cash budget, the current and quick ratios provide fast and easy-to-use measures of a firm's liquidity position.
True False
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A firm wants to strengthen its financial position.Which of the following actions would increase its current ratio?
Multiple Choice
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Which of the following statements is CORRECT?
Multiple Choice
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Pettijohn Inc. The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. img -Refer to the data for Pettijohn Inc.What is the firm's quick ratio?
Multiple Choice
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Considered alone, which of the following would increase a company's current ratio?
Multiple Choice
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One problem with ratio analysis is that relationships can be manipulated.For example, we know that if our current ratio is less than 1.0, then using some of our cash to pay off some of our current liabilities would cause the current ratio to increase and thus make the firm look stronger.
True False
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The current ratio and inventory turnover ratios both help us measure the firm's liquidity.The current ratio measures the relationship of a firm's current assets to its current liabilities, while the inventory turnover ratio gives us an indication of how long it takes the firm to convert its inventory into cash.
True False
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Amram Company's current ratio is 1.9.Considered alone, which of the following actions would reduce the company's current ratio?
Multiple Choice
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Which of the following would, generally, indicate an improvement in a company's financial position, holding other things constant?
Multiple Choice
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The "apparent," but not the "true," financial position of a company whose sales are seasonal can differ dramatically, depending on the time of year when the financial statements are constructed.
True False
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Significant variations in accounting methods among firms make meaningful ratio comparisons between firms more difficult than if all firms used similar accounting methods.
True False
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High current and quick ratios always indicate that a firm is managing its liquidity position well.
True False
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Pettijohn Inc. The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. img -Refer to the data for Pettijohn Inc.What is the firm's current ratio?
Multiple Choice
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One problem with ratio analysis is that relationships can be manipulated.For example, if our current ratio is greater than 1.5, then borrowing on a short-term basis and using the funds to build up our cash account would cause the current ratio to increase.
True False
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The inventory turnover ratio and days sales outstanding (DSO) are two ratios that are used to assess how effectively a firm is managing its assets.
True False
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Lofland's has $20 million in current assets and $10 million in current liabilities, while Smaland's current assets are $10 million versus $20 million of current liabilities.Both firms would like to "window dress" their end-of-year financial statements, and to do so each plans to borrow $10 million on a short-term basis and to then hold the borrowed funds in their cash accounts.Which of the statements below best describes the results of these transactions?
Multiple Choice
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Lincoln Industries' current ratio is 0.5.Considered alone, which of the following actions would increase the company's current ratio?
Multiple Choice
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