Problem 1: Airlux Antarctica has current assets of $300 million, current liabilities of $200 million, and a crash-sorry-cash ration of .05. How much cash and marketable securities does it hold?
Problem 2: Current Ratio. How would the following actions affect a firm's current ratio?
a. Inventory is sold.
b. The firm takes out a bank loan to pay its suppliers.
c. The firm arranges a lone of credit with a bank that allows it to borrow at any time to pay its suppliers.
d. A customer pays its overdue bills.
d. The firm uses cash to purchase additional inventories.
Problem 3: Suppose that a firm has both floating rate and fixed rate debt outstanding. What effect will a decline in interest rates have on the firm's times interest earned ratio? What about the ratio of the market value of debt to that of equity? Based on these answers, would you say that leverage has increased or decreased?
Problem 4: Suppose that you wish to use financial ratios to estimate the risk of a company's stock. What are some common accounting measures of risk?
Problem 5: Describe some alternative measures of a firm's overall performance. What are their advantages and disadvantages? In each case discuss what benchmarks you might use to judge whether performance is satisfactory.