Too much investment in current assets reduces firm profitability, whereas too little investment in current assets increases the risk of not being able to pay debts as they come due. Explain briefly the statement.
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Too much investment in current assets reduces firm profitability, whereas too little investment in current assets increases the risk of not being able to pay debts as they come due. Explain briefly the statement.
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- One of the indirect costs of financial distress is having to sell assets at lower than market value. Using examples explain what this is and how it could effect the value of a firm.Which of the following is not true? GAP analysis Ignores changes in the market value of assets and liabilities. GAP analysis Ignores time value of money. GAP analysis is easy to compute and can accurately predicts the exact losses or gains Gap analysis fails to capture non-interest revenueWhy is the acid test ratio a more rigorous test of short-term solvency than the current ratio? A. The quick ratio eliminates prepaid expenses for the denominator.B. The quick ratio eliminates prepaid expenses for the numerator.C. The quick ratio eliminates inventories from the numerator.D. The quick ratio considers only cash and marketable investments as current assets.E. The quick ratio eliminates revenue from the numerator.
- The ___ the expected return from a financial asset, the ____ the risk of not getting the money back from that financial asset.How would the transactions be reconciled if the allowance for bad debt is converted to a bad debt write off but the company is able to recoup the funds?An advantage that money has over other assets is that it: Answer a. Provides a higher return to the owner b. Is a safer asset to hold during times of inflation c. Increases in value over time d. Has lower transaction costs to use as a means of payment than other assets
- The following are goals‘andobjectives in working-capitalmanagement. Which is the LEASTACCURATE? a. Payables management includes the analysis of the business's use of trade payables and short-term non-trade payables but not long-term non-trade payables.b. Availability of money marketable securities support the cash management function by providing a return on excess cash.c. Receivable management involves setting the credit term but not the implementation of how receivables are collected.d. Inventory management allows the entity to determine the best level of this asset while balancing the risk of over- and under- stocking.Spending too little on fixed assets is also harmful to the firm how?Is a negative free cash flow (FCF) always a bad sign? A negative free cash flow means that the company does not have sufficient internal funds to finance investments in fixed assets and working capital. Is there a scenario where a negative free cash flow is not a bad sign for the company?
- A disadvantage of using the payback period to compare investment alternatives is that it a. Ignores cash flows beyond the payback period. b. Cannot be used to compare alternatives with different initial investments. c. Cannot be used when cash flows are not uniform. d. Involves the time value of money. e. Cannot be used if a company records depreciation.If debt creates additional expense without enough benefit through cost savings, income or capital gain, then it is not worth it. True or False?Answer the following questions in depth .... Isn't estimating bad debts a way of manipulating net income? How does a company keep control on these estimates? How does one go about determining if noncollectable receivables are within a reasonable range?