Which of the following statements is most correct?(a) A decline in the inventory turnover ratio suggests that the firm's liquidity position is improving.{b) The profit margin on sales is calculated by dividing net operating income by sales(c) When a corporation buys back its own stock, this is called Treasury Stock. The firm's cash and equity are both reduced.(d) None of the above.

Which of the following statements is most correct?(a) A decline in the inventory turnover ratio suggests that the firm's liquidity position is improving.{b) The profit margin on sales is calculated by dividing net operating income by sales(c) When a corporation buys back its own stock, this is called Treasury Stock. The firm's cash and equity are both reduced.(d) None of the above.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter14: Completing A Quality Audit

Section: Chapter Questions

Problem 24CYBK

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Which of the following statements is usually correct? A low receivables turnover is good for the business The lower the total debt-to-equity ratio, the lower the financial risk for a firm The higher the tax rate for a firm, the lower the interest coverage ratio An increase in net profit margin with no change in sales or assets means a poor ROI
Bob's Inc has the following balance sheet and income statement data see image... The new CFO thinks that inventory are excessive and could be lowered to cause the current ratio to equal industry average 3.00 w/o affecting either sales or net income. assuming that inventories are sold off and not replaced to get the current ratio to the target level and that the funds generated are used to buy back common stock at book value, by how much would the ROE change?
Which of the following statements is most correct? Select one: A. A company with a current ratio of 0.5, should purchase additional inventory on credit if it wants to improve this ratio. B. Return on assets is a function of two variables, the profit margin and current asset turnover. C. A company with a current ratio of 0. 5, should sell some of the existing inventory at cost if it wants to improve this ratio. D. Firms with low rates of return on stockholders’ equity tend to sell at relatively high ratios of market price to book value.
Which of the following statements is true? a. High liquidity means a company is short on cash and may be unable to pay its debts.b. When a company decides to go public through an IPO, it is typically targeting to sell its shares to only a handful of shareholders. c. If the company has a higher than expected extremely high profit this year, equity holders will benefit more than debt holders as debtholders are the residual claimers for the cash flows of the company.d. In the extreme case, the debt holders take legal ownership of the firm's assets through a process called bankruptcy.e. Equity holders expect to receive dividends and the firm is always legally obligated to pay them.
Which of the following statements about the current ratio is FALSE? A. The higher the current ratio, the higher the level of cash must be for the firm. B. This ratio is a meaningful measure of liquidity because the book value of the assets and liabilities used in the calculation tend to deviate only slightly from market values. C. It will always be greater than the quick ratio in companies that carry inventory. D. This ratio is intended to indicate the short-run liquidity position of the firm. E. This ratio is calculated by dividing current assets by current liabilities.
answer these question in just two sentences. a..“If a firm sold some inventory on credit, its current ratio would probably not change much, but its quick ratio would increase.” If it is possible give reason in two sentences. b. In general, it's better to have a low inventory turnover ratio than a high one, as a low ratio indicates that the firm has an adequate stock of inventory relative to sales and thus will not lose sales as a result of running out of stock. If it is false give reason in two sentences. c. “It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.” If you are not agreed with this statement give justification in two sentences.
Which of the following typically is true for profitability ratios? a. Growth stocks have lower price to earnings ratios.b. Companies in more competitive industries have higher profit margins.c. The gross profit ratio declines as competition increases.d. When a company has debt, its return on equity will be lower than its return on assets.
In general, it's better to have a low inventory turnover ratio than a high one, as a low ratio indicates that the firm has an adequate stock of inventory relative to sales and thus will not lose sales as a result of running out of stock. If it is false give reason in two sentences.
For each of the companies described here, would you expect it to have a low, medium, or high dividend-payout ratio? Explain why. d. A dividend-paying company that experiences an unexpected drop in earnings from an upward-sloping trend line e. A company with volatile earnings and high business risk
For the following scenario, discuss whether profit opportunities exist from trading in the stock of the firm under the conditions that the market is semistrong form but not strong form efficient. a. The stock price has risen steadily each day for the past 30 days.b. The financial statements for a company were released three days ago, and you believe you’ve uncovered some anomalies in the company’s inventory and cost control reporting techniques that are causing the firm’s true liquidity strength to be understated.c. You observe that the senior management of a company has been buying a lot of the company’s stock on the open market over the past week. Use the following information for the next two questions: Technical analysis is a controversial investment practice. Technical analysis covers a wide array of techniques, which are all used in an attempt to predict the direction of a particular stock or the market. Technical analysts look at two major types of information: historical stock…
A firm’s balance sheets for the last two years are as follows (refer to image): Sales in 20X1 were $250,000. Sales in 20X2 were $250,000. a. Based solely on the current ratio and the quick ratio, has the firm’s liquidity position deteriorated or improved? b. Without doing a calculation, has days sales outstanding (receivables turnover) improved? How do you know? c. Without doing a calculation, has inventory turnover deteriorated? How do you know? d. If the firm earned $5,000 during 2012, what proportion of those earningswere distributed?
Which of the following statements are false? Select all that apply a. Liquidity ratios are used to measure the speed with which various accounts are converted into sales. b. When ratios of different years are being compared, inflation should be taken into consideration c. Return on total assets (ROA) is sometimes called return on investment d. Generally, inventory is concerned with the most liquid asset that a firm possesses. e. A P/E ratio of 20 indicates that investors are willing to pay $20 for each $1 of earnings.