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
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
