Why is the quick ratio considered by some to be a better measure of liquidity than the current ratio? A) The quick ratio more accurately reflects a firm's profitability. B) It leaves out the least liquid current asset from the numerator of the ratio. C) The current ratio does not include accounts receivable. D) It measures how "quickly" cash flows through the firm.

Why is the quick ratio considered by some to be a better measure of liquidity than the current ratio? A) The quick ratio more accurately reflects a firm's profitability. B) It leaves out the least liquid current asset from the numerator of the ratio. C) The current ratio does not include accounts receivable. D) It measures how "quickly" cash flows through the firm.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 6QE

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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.
All the statements are incorrect regarding current ratio except? a. The more predictable a firm's cash flows, the higher the acceptable current ratio. b. A higher current ratio indicates a higher return on equity. c. The more predictable a firm's current ratio, the higher the clyrent liabilities. d. A higher current ratio indicates a greater degree of liquidity.
Indicate whether the following are true or false. Financial statement analysis is used by insiders and outsiders to identify strengths and weaknesses. Time series analysis compares one firm to another. If you want to determine the gross profit earned on each dollar of sales, use the operating profit margin ratio. The earnings per share ratio is used to predict the amount of cash dividends. Discounted cash flow values an asset based on the future value of cash flows associated with that asset
What are the advantages/disadvantages of using the discounted cash flows method of estimating the value of a company?
What is the stuitable strategy to do for, Operating cash does not cover debt, PE Ratio, EPS Ratio, and ROE cannot be calculated because of its unprofitability, andDebt to equity ratio is higher than accepted percentage?
Which one of the following statements is correct? A. If a firm decreases its inventory period, its accounts receivable period will also decrease. B. The longer the cash cycle, the more cash a firm typically has available to invest. C. A firm would prefer a negative cash cycle over a positive cash cycle. D. Decreasing the inventory period will also decrease the payables period. E. Both the operating cycle and the cash cycle must be positive values.
Th e most stringent test of a company’s liquidity is its:A . cash ratio.
What contrasts are there between what is shown in cash flow statements and the need for firms to borrow at high rates and firms' income statements?
Which of the following usually is least important as ameasure of short-term liquidity?a. Quick ratio.b. Debt ratio.c. Current ratio.d. Cash flows from operating activities.
Which of the following is not likely to be used to measure a company's liquidity? a) Financial leverage b) Working capital c) Current ratio d) Acid-test (quick) ratio
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 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.

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A)	The quick ratio more accurately reflects a firm's profitability.
B)	It leaves out the least liquid current asset from the numerator of the ratio.
C)	The current ratio does not include accounts receivable.
D)	It measures how "quickly" cash flows through the firm.