FIN 340 Exam 1 UPDATED Exam Questions and CORRECT Answers

FIN 340 Exam 1 UPDATED Exam Questions
and CORRECT Answers
quick ratio - CORRECT ANSWER - (Current Assets - Inventory) / Current Liabilities


Liquidity
measures the firms ability to pay off short term obligations with the most liquid assets
GREATER THAN 1


Current Ratio - CORRECT ANSWER - current assets/current liabilities (liquidity)


indicates to the extent to which current liabilities are covered by those assets expected to be
converted to cash in the near future, rule of thumb 2:1
HIGH IS BETTER


Total Asset Turnover - CORRECT ANSWER - Sales/Total Assets


(Asset management ratio)
Measures how effectively a firm uses its total assets to generate revenue
HIGH IS BETTER


Fixed Asset Turnover - CORRECT ANSWER - Sales/Net Fixed Assets


net fixed assets=net plant and equipment (asset management ratio)


measures how effectively the firm uses its PPE to generate revenue
HIGHER IS BETTER

, Days Sales Outstanding - CORRECT ANSWER - Receivables/(Annual Sales/365)


(asset management ratio)
Indicates the length of time the firm must wait after making a sales before receiving cash
LOWER IS BETTER


Inventory Turnover - CORRECT ANSWER - (COGS+Depr.)/Inventory


(asset management ratio)
Measures the speed at which inventory moves through a company; how many times inventory is
replaced
HIGH IS BETTER


debt to assets ratio - CORRECT ANSWER - Total Debt/Total Assets


(debt management ratio)
indicates how much debt a company is using to finance assets
Creditors want low
investors want high


Debt to Equity Ratio - CORRECT ANSWER - Total Debt/Total Common Equity


(debt management ratio)
measures how much the company depends on debt to finance the business
LOW IS BETTER
you dont want more debt than equity