FSA Test Questions | Questions with 100% Correct Answers | Updated & Verified

FSA Test Questions | Questions with 100% Correct Answers | Updated & Verified A firm has a low or negative profit margin. What would be a potential solution? - If the firm has declining sales, the firm should try to generate more sales. Which of the following measures the extent to which the owner's capital (equity) is tied up in non-liquid, permanent, depreciable property? - Fixed assets to net worth If a company begins to collect its receivables slower, its collection period will? - Increase Internal causes are things that negatively impact a company's financial problems, but are under the company's control. - True When the inventory turnover ratio becomes low and the firm uses cash to finance any changes on the balance sheet, this will cause which of the following problems? - Quality/Quantity of liquidity will decrease The only quick-fix for a company with a high fixed assets to net worth ratio is to raise external equity. - True The causal ratios tell us whether or not a firm has a problem. - False Sometimes a company can offset its financial problem by doing other things well. This is called developing a compensating advantage. - True If an undertrader wants to improve its financial condition, it could: - Stimulate sales growth and sell-off excess facilities in non-growing division A company's collection period increases. Any changes on the balance sheet are financed by short-term debt. Its receivables to working capital ratio will? - Increase All else constant, if a company's payables period decreases, its cash conversion cycle will? - Increase What do the quantity of liquidity ratios measure? - Proportionally how much liquidity is on the balance sheet What measures solvency? - Times interest earned A large ratio of inventory to working capital (relative to the industry average) generally suggests that the quality of liquidity is good. - False What do the quality of liquidity ratios measure? - The composition of liquidity In class we mentioned that short-term debt was riskier and more problematic than long-term debt when viewed from the borrower's perspective. What is not one of the reasons on the list? - Short-term debt takes less time to manage than long-term debt What do the solvency ratios measure? - The ability of the company to afford debt What may indicate liquidity problems in high sales growth companies earlier than other liquidity ratios? - Net sales to working capital A company's receivables period increased by 5 days and its payables deferral period increased by 5 days. Its cash conversion period will increase. - False If a company begins to collect its receivables slower, its cash conversion period will likely... - Increase What is