Agribusiness Management Exam 3
(Maples, MSU) questions n answers
What are you doing during a comparative statement analysis? - correct answer ✔✔1)
Comparing two statments
2) Examined for any significant changes that could affect the financial condition of the firm
What is net working capital? - correct answer ✔✔1) The difference between current assets and
current liabilities expressed on a balance sheet
2) The amount of cash avaliable to meet day-to-day and unexpected expenses
What does inadequate working capital mean? - correct answer ✔✔1) The firm may have
trouble paying bills, taking advantage of business opportunities, and meeting emergencies
What are the four types of ratio analysis/ - correct answer ✔✔1) Liquidity ratio
2) Solvency ratio
3) Activity ratio
4) Profitability ratio
What does the current ratio of liquidity measure? - correct answer ✔✔1) The relationship
between current assets and current liabilities (balance sheet)
2) Current assets / current liabilities
What is the quick ratio of liquidity? - correct answer ✔✔1) Same as curret, except the value of
inventories is subtracted from current assets
, 2) (Current assets - inventories) / current liabilities
What is the "ultimate test of liquidity? What does it measure? - correct answer ✔✔1) The Acid
Test Ratio
2) It assumes all bills must be paid immediatly and iventories and accounts receivable cannot be
converted into cash
3) Cash / current liabilities
What do solvency ratios do? - correct answer ✔✔1) Give lenders a relative measure of the
chances that money they have invested will be repaid and the likelihood that the firm will be
able to meet the interest payment on its debts
What does the debt to equity ratio under solvency measure? - correct answer ✔✔1) Measures
the relative size of claims on a firm's assets between its creditors and owners
2) (Total debt = total liabilities) / Owner's equity
What is the times interest earned ratio under solvency measure? - correct answer ✔✔1) One
measure of risk is the size of the organization's pre-tax earnings relative to the loan interst due
during the accounting period
2) (Income before tax + interest expense) / Interest expense
What happens to net working capital when inventory is purchased with cash? - correct answer
✔✔1) Cash - decrease
2) Inventory - increase
3) Current liabilities - no change
What happens to net working capital when inventory is purchased on account? - correct answer
✔✔1) Inventory - increase
2) Accounts payable - increase
(Maples, MSU) questions n answers
What are you doing during a comparative statement analysis? - correct answer ✔✔1)
Comparing two statments
2) Examined for any significant changes that could affect the financial condition of the firm
What is net working capital? - correct answer ✔✔1) The difference between current assets and
current liabilities expressed on a balance sheet
2) The amount of cash avaliable to meet day-to-day and unexpected expenses
What does inadequate working capital mean? - correct answer ✔✔1) The firm may have
trouble paying bills, taking advantage of business opportunities, and meeting emergencies
What are the four types of ratio analysis/ - correct answer ✔✔1) Liquidity ratio
2) Solvency ratio
3) Activity ratio
4) Profitability ratio
What does the current ratio of liquidity measure? - correct answer ✔✔1) The relationship
between current assets and current liabilities (balance sheet)
2) Current assets / current liabilities
What is the quick ratio of liquidity? - correct answer ✔✔1) Same as curret, except the value of
inventories is subtracted from current assets
, 2) (Current assets - inventories) / current liabilities
What is the "ultimate test of liquidity? What does it measure? - correct answer ✔✔1) The Acid
Test Ratio
2) It assumes all bills must be paid immediatly and iventories and accounts receivable cannot be
converted into cash
3) Cash / current liabilities
What do solvency ratios do? - correct answer ✔✔1) Give lenders a relative measure of the
chances that money they have invested will be repaid and the likelihood that the firm will be
able to meet the interest payment on its debts
What does the debt to equity ratio under solvency measure? - correct answer ✔✔1) Measures
the relative size of claims on a firm's assets between its creditors and owners
2) (Total debt = total liabilities) / Owner's equity
What is the times interest earned ratio under solvency measure? - correct answer ✔✔1) One
measure of risk is the size of the organization's pre-tax earnings relative to the loan interst due
during the accounting period
2) (Income before tax + interest expense) / Interest expense
What happens to net working capital when inventory is purchased with cash? - correct answer
✔✔1) Cash - decrease
2) Inventory - increase
3) Current liabilities - no change
What happens to net working capital when inventory is purchased on account? - correct answer
✔✔1) Inventory - increase
2) Accounts payable - increase
