Which of the following statements is true? OA. Profit margin is calculated by dividing total assets by sales. B. Return on Equity rises if equity increases and net income remain constant. C. A 10% increase in cash will lead to a greater Cash Ratio O D. The current ratio increases if the current liabilities increase

Which of the following statements is true? OA. Profit margin is calculated by dividing total assets by sales. B. Return on Equity rises if equity increases and net income remain constant. C. A 10% increase in cash will lead to a greater Cash Ratio O D. The current ratio increases if the current liabilities increase

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter7: Analysis Of Financial Statements

Section: Chapter Questions

Problem 1Q: Define each of the following terms: Liquidity ratios: current ratio; quick, or acid test,...

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Define each of the following terms: Liquidity ratios: current ratio; quick, or acid test, ratio Asset management ratios: inventory turnover ratio; days sales outstanding (DSO); fixed assets turnover ratio; total assets turnover ratio Financial leverage ratios: debt ratio; times-interest-earned (TIE) ratio; EBITDA coverage ratio Profitability ratios: profit margin on sales; basic earning power (BEP) ratio; return on total assets (ROA); return on common equity (ROE) Market value ratios: price/earnings (P/E) ratio; price/cash flow ratio; market/book (M/B) ratio; book value per share Trend analysis; comparative ratio analysis; benchmarking DuPont equation; window dressing; seasonal effects on ratios
Solution gives as: 1- Current ratio ? :1 2- Return on common stockholders equity ? % 3- Price Earnings Ratio ? Times 4- Accounts receivable turnover ? Times 5- Times interest earned ? Times 6- Profit Margin ? % 7- Days in inventory ? Days 8- Payout Ratio ? % 9- Return on Assets ? %
Assume that the company has a current ratio of 1.2. Now which of the above actions would improve this ratio. Which of the following actions would improve (i.e., increase) this ratio?• Use cash to pay off current liabilities.• Collect some of the current accounts receivable.• Use cash to pay off some long-term debt.• Purchase additional inventory on credit (i.e., accounts payable).• Sell some of the existing inventory at cost.
If a company has a quick ratio of 1.0 and a current ratio of 2.0, it is more likely that A. the value of current liabilities is equal to the value of inventory. B. the value of current assets is equal to the value of inventory. C. the value of current assets is equal to the value of current liabilities. D. the value of current liabilities is more than the value of current assets.
Which of the following generally indicates an improvement in a company’s financial position? The times interest earned ratio declines The days sales outstanding ratio increases The quick Ratio increases The current ratio declines The total assets turnover ratio decreases
Company X is competing with company Y. These are their ratios: x y Current Ratio = .223 Current Ratio = .146 Cash Ratio = .057 Cash Ratio = .031 Quick Ratio = .105 Quick Ratio = .072 Based on liquidity and short term assets, which company is doing better?
1- Calulate the following liquidity ratio: a. Current Ratio b. Quick Ratio 2-Calulate the following asset management ratios a. Average collection period b. Inventory Turnover c. Fixed-asset turnover d. Total asset turnover 3. Calculate the following financial leverage management ratios: a. debt ratio b. Debt-to-equity ratio c. Times interest earned ratio d. Fixed-charge coverage ratio 4. Calculate the following profitablity leverage management ratios a. Gross profit margin b. Net profit margin c. Return on investment d. Return on Stockholders' equity 5. Calculate the following market-based ratios: a. Price-to-earnings ratio b. Market price-to-book value ratio
Which of the following would not result in an increase in both the current ratio and the acid-test ratio? A. Increase in inventory B. Increase in accounts receivable C. Increase in cash D. Increase in current investments
Which of the following events will cause a company’s current ratio to decrease? a. The sale of inventory for credit (accounts receivable) b. Issuing stock for cash c. The sale of inventory for cash d. Paying off long-term debt with cash
Using the statements provided Calculate the following liquidity ratios: Current ratio Quick ratio Calculate the following asset management ratios: Average collection period Inventory turnover Fixed asset turnover Total asset turnover Calculate the following financial leverage ratios Debt to equity ratio Long-term debt to equity Calculate the following profitability ratios: Gross profit margin Net profit margin Return on assets Return on stockholders’ equity For example: you should present it like the text, or as:Gross margin = 1,933 divided by 8,689 = 22.2% A competitor of ACME has for the same time period reported the following three ratios: Current ratio 1.52Long-term debt to equity .25 or 25%Net profit margin .08 or 8% Given these three ratios only which company is performing better on each ratio? Also overall who would you say has the best financial performance and position. Support your answer.
If a firm’s current ratio less quick ratio is 1.0, then: a. the firm’s inventory is equal to its current assets b. the firm’s cash is equal to its current liabilities c. the firm’s accounts receivable are equal to its current assets d. the firm’s inventory is equal to its current liabilities
Identify which of the following six metrics a through f best completes questions 1 through 3 below. a. Days’ sales uncollected d. Return on total assets b. Accounts receivable turnover e. Total asset turnover c. Working capital f. Profit margin 1. Which two ratios are key components in measuring a company’s operating efficiency? Which ratio summarizes these two components? 2. What measure reflects the difference between current assets and current liabilities? 3. Which two short-term liquidity ratios measure how frequently a company collects its accounts?