F371 Essn. of Corporate Finance >C< By Ross MCG Custom ISBN 9781259320576
14th Edition
ISBN: 9781259320576
Author: Ross, Westerfield, Jordan
Publisher: MCG CUSTOM
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Textbook Question
Chapter 3, Problem 2CRCT
Current Ratio and Quick Ratio. In recent years, Dixie Co. has greatly increased its current ratio. At the same time, the quick ratio has fallen. What has happened? Has the liquidity of the company improved?
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Students have asked these similar questions
A firm's current ratio is above the previous year; however, the firm's quick ratio is below the previous year.
What do these ratios suggest about the firm?
Has relatively more total current assets and even more inventory than the previous year
Is very efficient at managing inventories in the current year
Has liquidity that is superior to the average firm in the industry
None of these is correct
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
A firm's current ratio has steadily increased over the past 5 years, from 1.9 to 3.8. What would a financial analyst probably conclude from this information?
A. The firm's fixed assets turnover has improved.
B. The firm's liquidity position has improved.
C. The firm's financial leverage has improved.
D. All of the above
Chapter 3 Solutions
F371 Essn. of Corporate Finance >C< By Ross MCG Custom ISBN 9781259320576
Ch. 3.1 - Why is it often necessary to standardize financial...Ch. 3.1 - Prob. 3.1BCQCh. 3.2 - What are the five groups of ratios? Give two or...Ch. 3.2 - Turnover ratios all have one of two figures as...Ch. 3.2 - Profitability ratios all have the same figure in...Ch. 3.3 - Given the total debt ratio, what other two ratios...Ch. 3.3 - Return on assets, or ROA, can be expressed as the...Ch. 3.3 - Return on equity, or ROE, can be expressed as the...Ch. 3.4 - What does a firms internal growth rate tell us?Ch. 3.4 - What does a firms sustainable growth rate tell us?
Ch. 3.4 - Why is the sustainable growth rate likely to be...Ch. 3.5 - Prob. 3.5ACQCh. 3.5 - Prob. 3.5BCQCh. 3.5 - Prob. 3.5CCQCh. 3.5 - Prob. 3.5DCQCh. 3 - Section 3.1A common-size balance sheet expresses...Ch. 3 - Prob. 3.2CCh. 3 - Prob. 3.3CCh. 3 - Prob. 3.4CCh. 3 - Current Ratio. What effect would the following...Ch. 3 - Current Ratio and Quick Ratio. In recent years,...Ch. 3 - Prob. 3CRCTCh. 3 - Financial Ratios. Fully explain the kind of...Ch. 3 - Standardized Financial Statements. What types of...Ch. 3 - Prob. 6CRCTCh. 3 - Prob. 7CRCTCh. 3 - Prob. 8CRCTCh. 3 - Industry-Specific Ratios. So-called same-store...Ch. 3 - Industry-Specific Ratios. There are many ways of...Ch. 3 - Prob. 11CRCTCh. 3 - Financial Statement Analysis. In the previous...Ch. 3 - Prob. 1QPCh. 3 - Prob. 2QPCh. 3 - Prob. 3QPCh. 3 - Prob. 4QPCh. 3 - Prob. 5QPCh. 3 - Prob. 6QPCh. 3 - Prob. 7QPCh. 3 - Prob. 8QPCh. 3 - Prob. 9QPCh. 3 - Prob. 10QPCh. 3 - Prob. 11QPCh. 3 - Prob. 12QPCh. 3 - Prob. 13QPCh. 3 - Prob. 14QPCh. 3 - Prob. 15QPCh. 3 - Prob. 16QPCh. 3 - Prob. 17QPCh. 3 - Prob. 18QPCh. 3 - Prob. 19QPCh. 3 - Prob. 20QPCh. 3 - Prob. 21QPCh. 3 - Prob. 22QPCh. 3 - Prob. 23QPCh. 3 - Prob. 24QPCh. 3 - Prob. 25QPCh. 3 - Prob. 26QPCh. 3 - Prob. 27QPCh. 3 - Prob. 28QPCh. 3 - Prob. 29QPCh. 3 - Prob. 30QPCh. 3 - Prob. 31QPCh. 3 - Prob. 32QPCh. 3 - Prob. 33QPCh. 3 - Prob. 34QPCh. 3 - Prob. 35QPCh. 3 - Prob. 36QPCh. 3 - Prob. 37QPCh. 3 - Prob. 38QPCh. 3 - Prob. 39QPCh. 3 - Prob. 40QPCh. 3 - Prob. 41QPCh. 3 - Prob. 42QPCh. 3 - Prob. 43QPCh. 3 - Constraints on Growth. High Flyer, Inc., wishes to...Ch. 3 - Prob. 45QPCh. 3 - Prob. 46QPCh. 3 - Prob. 1CCCh. 3 - Prob. 2CCCh. 3 - Prob. 3CCCh. 3 - Prob. 4CC
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- Which of the following statements are true about profitability ratios? Check all that apply. If a company has a net profit margin of 10%, it means that the company earned a net income of $0.10 for each dollar of sales. If a company’s operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes. An increase in the return on assets ratio implies an increase in the assets a firm owns. If a company issues new common shares but its net income does not increase, return on common equity will increase.arrow_forwardYou observe that a firm's ROE has increased from the previous year, but both its profit margin and equity multiplier are below the previous year's levels. Which of the following statements is CORRECT? Its return on assets must be lower than the previous year. Its total assets turnover must be lower than the previous year. Its TIE ratio must be higher than the previous year. Its total assets turnover must be higher than the previous year.arrow_forwardRelation between Current Ration and Quick Ration. A firm has experienced a decrease in its current ratio but an increase in its quick ratio during last three years. What is the likely explanation for these results?arrow_forward
- Which of the following is true? I. If there is no change in gross fixed assets from one year to the next, then net fixed assets would have to have decreased. II. For firms with lower P/E ratios, investors are valuing each dollar of earnings more than for firms with higher P/E ratios. III. A increase in the current ratio indicates an improvement in a firm's long-term solvency condition.arrow_forwardLooking at Morningstars Profitability ratios, what has happened to Hewlett Packards profit margin (net margin %) over the past 10 years? What has happened to its return on assets (ROA) and return on equity (ROE) over the past 10 years?arrow_forwardA 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?arrow_forward
- 1. In financial statement analysis, what is the basic objective of observing trends in data and ratios? 2. Distinguish between trend percentages and component percentages. Which would be better suited for analyzing the change in sales over a term of several years?3. What is the quick ratio? Under what circumstances are short-term creditors most likely to regard a company’s quick ratio as more meaningful than its current ratio?4. Identify the ratios or other analytical tools used to evaluate profitability. Explain briefly how each is computed.5. Net sales of Major General Store have been increasing at a reasonable rate, but net income has been declining steadily as a percentage of these sales. What appears to be the problem?6. Why might earnings per share be more significant to a shareholder in a large corporation than the total amount of net income?7. ABC Co. has a current ratio of 3 to 1. Ono Corp. has a current ratio of 2 to 1. Does this mean that ABC’s operating cycle is longer than…arrow_forwardWhich of the following is most likely true concerning the stability and trend of earnings? Question options: The stability and trend of earnings require at least five years of historical data to be meaningful. The stability and trend of earnings are key factors when calculating cost of sales. The stability and trend of earnings are not factored in the analysis of revenues. The stability and trend of earnings depend on the trend of a single industry.arrow_forwardA firm wants to strengthen its financial position. Which of the following actions would increase its current ratio? 1. b. Reduce the company's days' sales outstanding to the industry average and use the resulting cash savings to purchase plant and equipment. 2. d. Borrow using short-term debt and use the proceeds to repay debt that has a maturity of more than one year. 3. e. Issue new stock and then use some of the proceeds to purchase additional inventory and hold the remainder as cash. 4. a. Use cash to increase inventory holdings. 5. c. Use cash to repurchase some of the company's own stock.arrow_forward
- What does the following scenarios from a two year period tell about a companys profitablity and efficient use of assets: a) profit margin ratio slightly decreases. b) return on total assets increased. c) return on equity increased. d) basic earnings per share increases.arrow_forwarda. what are the debt to equity ratios at the beginning and the end of the 2018 fiscal business year? Has the ratio improved? If so, by how much? b. the restaurant has last cash at the end of the year than it had at the beginning, is that a bad thing? explain.arrow_forwardWhich of the following would most likely signal that a company may be using aggressiveaccrual accounting policies to shift current expenses to later periods? Over the last fi veyear period, the ratio of cash fl ow to net income has:A . increased each year.B . decreased each year.C . fl uctuated from year to year.arrow_forward
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