In comparing the current ratios of two companies, why is it invalid to assume that the company with the higher current ratio is the better company? Select the correct response: The current ratio includes assets other than cash. A high current ratio may indicate inadequate inventory on hand. A high current ratio may indicate inefficient use of various assets and liabilities. O The two companies may define working capital in different terms.

In comparing the current ratios of two companies, why is it invalid to assume that the company with the higher current ratio is the better company? Select the correct response: The current ratio includes assets other than cash. A high current ratio may indicate inadequate inventory on hand. A high current ratio may indicate inefficient use of various assets and liabilities. O The two companies may define working capital in different terms.

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter3: Taxes On The Financial Statements

Section: Chapter Questions

Problem 5RP

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In comparing the current ratios of two companies, why is it invalid to assume that the company with the higher current ratio is the better company? a. The two companies may be different sizes. b. A high current ratio may indicate inadequate inventory on hand. c. The two companies may define working capital in different terms. d. A high current ratio may indicate inefficient use of various assets and liabilities. could you explain this question
Which of the following statements is correct? Statement 1. Ratios are used to compare different companies in the same industry. Statement 2. Financial ratios are used to weigh and evaluate the operational performance of the company. Statement 3. Liquidity ratios indicate how fast a company can generate cash to pay bills. A. Statement 1 only. B. Statement 2 only. C. Statement 3 only. D. All of the statements are correct. E. None of the statement is correct.
Which of the following statements is CORRECT? A. Net working capital is defined as current assets minus the difference between current liabilities and notes payable, and any increase in the current ratio automatically indicates that net working capital has increased B. If a company follows a policy of "matching maturities," this means that it matches its use of common stock with its use of long-term debt as opposed to short-term debt. C. Net working capital is defined as current assets minus the difference between current liabilities and notes payable, and any decrease in the current ratio automatically indicates that net working capital has decreased. D. Credit policy has an impact on working capital because it influences both sales and the time before receivables are collected.
A firm's market-to-book ratio might be greater than 1.0 due to accounting reasons. An example of an accounting reason that would cause the market-to-book ratio to increase is a. straight-line methods of depreciation. b. using LIFO versus FIFO for inventory. c. level 1 fair values. d. off-balance-sheet assets arising from investments in successful research and development programs that are expensed according to conservative accounting principles.
Which of the following statements is NOT correct? Statement 1: Debt utilization ratios are used to evaluate the firm's debt position with regard to its asset base and earning power. Statement 2: The DuPont system of analysis emphasizes that profit generated by assets can be derived by various combinations of profit margins and asset turnover. Statement 3: Satisfactory return on assets may be achieved through high profit margins or rapid turnover of assets, but not a combination of both. A. Statement 1 only. B. Statement 2 only. C. Statement 3 only. D. All of the statements are NOT correct. E. All of the statements are correct.
24 Assume that the total assets, liabilities, equity of the company are OMR 60000, OMR 20000 and OMR 40000 respectively.The company received OMR10000 dividend income from foreign securities and the company spent OMR 7000 factory painting, cleaning and maintenance expenses. Identify the effect of income received and expenses done by the company on different elements of balance sheet. a. Assets will decrease by OMR 10000 and Capital will increase by OMR 10000 b. None of the given options c. Assets will increase by OMR 10000 and Capital will decrease by OMR 7000 d. Assets will increase by OMR 3000 and capital will increase by OMR 3000 Clear my choice
6. Statement 1: Unrealized gains or losses from financial assets measured at fair value through OCI are closed to Retained Earnings at the end of the accounting period. Statement 2: If a company’s business model for debt investment is achieved by collecting contractual cash flows and by selling the financial asset, such investment should be designated as a financial asset measured at amortized cost. a. Only statement 1 is true b. Only statement 2 is true c. Both statements are true d. Both statements are false
When analyzing a company's current ratio: A. the industry in which the company operates should not be considered. B. most successful businesses operate with current ratios between 0.1 and 0.5. C. the current ratio measures the company's ability to pay all liabilities (current and long-term) with current assets. D. a current ratio of less than 1.00 means that current liabilities exceed current assets.
Which of the following statements is correct? Statement 1. Asset utilization ratios describe how capital is being utilized to buy assets. Statement 2. Profitability ratios allow one to measure the ability of the firm to earn an adequate return on sales, total assets, and invested capital. Statement 3. Asset utilization ratios measure the returns on various assets such as return on total assets. A. Statement 1 only. B. Statement 2 only. C. Statement 3 only. D. All of the statements are correct. E. None of the statement is correct.
1. Which of the following scenarios are the most appropriate applications of financial ratio analysis? I. Direct comparison of profitability between two companies which apply divergent accounting policies. II. Comparison of liquidity between two domestic financial institutions which apply consistent accounting policies. III. Direct comparison of profitability of a company before and after implementation of new accounting standards. IV. Trend analysis of financial ratios of a company across time periods.
5.) For each definition, list the “ratio category (or grouping)” that is described by filling in the blanks from (a) to (f) and provide one example for each category or grouping. a) Determines a company’s ability to pay off short term obligations or debts as they come due. ________________________ b) Relates company’s internal performance to the external judgment of the marketplace in terms of what it is worth. ________________________ c) Identifies percentage of earnings paid out to shareholders and what is reinvested for internal growth. ________________________ d) Speed at which company turns over its inventory, receivables and long-term assets. ________________________ e) How a company is financed between debt [lenders] and equity [owners]. ________________________ f) Measures return on sales, assets and total capital. ________________________
1. which of the following transactions and events would result in a deterioration in EBIT Profit Margin? a. selling goods on credit at the normal mark-up b. issuing shares for cash c. the consumption of a prepaid expense from the previous period d. A and B only e. A and C only f. B and C only g. All of the above h. None of the above 2. which of the following transactions and events would result in an improvement in Dividends per share a. the recognition of income tax expense owing at the end of the period b. the receipt of cash for dividends from other entities (increase financing cash flow) c. A and B only d. A and C only e. B and C only f. All of the above g. None of the above 3. which of the following transactions and events would result in an improvement in Days Purchases Outstanding a. an adjustment for wages owing at the end of the period b. the identification of an uninsured inventory loss c. selling goods for cash at the normal mark-up d. A and B only e. A and C…