1. Which of the following statement is incorrect?
a. Return on Assets ratio measures the contribution of net income per average dollar invested in the firm's assets, and it is a measure of the efficiency of the firm's assets in producing earnings.
b. The inventory turnover ratio is equal to Sales divided by Inventory, and tells us how efficiently the firm converts inventory to sales.
c. Most of the answers are correct.
d. Debt ratios measure how the market value of a company’s stock compares with its accounting values. e. The total asset turnover ratio is equal to Sales divided by Total Assets, and measures how efficiently a firm utilizes its assets.
2. Which of the following statement is incorrect?
a. Corporations are separate legal entities and they are owned by stockholders, who are responsible for the firm’s debts only to the extent of their investment.
b. The agency problem exists when the interests of a firm’s managers (the agents) are in conflict with those of the firm’s owners (the principals).
c. Most of the answers are correct.
d. The sales are not the same as cash inflows because businesses often sell goods and services on credit, and thus no cash changes hands at the time of the sale.
e. A business owned by one person is called a corporation.