Financial Management lecture 3 Q&A 2023 Update

Which of the following is not a reason why financial analysts use ratio analysis? - ANSRatios are ideal for smoothing out the differences that may exist when comparing firms that use different accounting practices. The debt ratio is a measure of a firm's - ANS-Leverage If you were given the components of current assets and of current liabilities, what ratio(s) could you compute? - ANS-Quick ratio and current ratio Which of the following statements is true? - ANS-The quick ratio is a more restrictive measure of a firm's liquidity than the current ratio. Which of the following transactions does not affect the quick ratio? - ANS-Equipment is purchased and is financed by a long-term debt issue. Given an accounts receivable turnover of 8 and annual credit sales of $362,000, the average collection period (360-day year) is: - ANS-45 days. The question "Did the common stockholders receive an adequate return on their investment?" is answered through the use of: - ANS-profitability ratios 14. The accounting rate of return on stockholders' investments is measured by: - ANSreturn on equity. A firm's average collection period has decreased significantly from the previous year. Which of the following could possibly explain the results? - ANS-Customers are taking longer to pay for purchases and the firm has a strict collection policy. An increase in _________ will increase common equity. - ANS-paid in capital and dividends paid Which of the following financial ratios is the best measure of the operating effectiveness of a firm's management? - ANS-Return on investment Which of the following is included in the denominator of the times-interest-earned ratio? - ANS-Interest expense Which of the following industries has the highest average inventory turnover ratio? - ANS-Supermarkets The quick ratio is a better measure of liquidity than the current ratio if the firm has current assets composed primarily of: - ANS-accruals Continues...