1. When a company reports a higher current ratio this year compared to last year we can conclude that
a. The company’s ability to meet short-term obligations has improved, but its asset management efficiency may have worsened.
b. It is a good news for the company and it clearly should make the company more attractive to stockholders.
c. Its collection on accounts receivable has improved.
d. Its debt level must have declined.
2. Assume that a company has accounts receivable turnover ratio equal to 12. What is its Number of Days’ Sales in Receivables? (answer as a number rounded to two decimal places, such as 15.56)
1. Assume a company’s Number of Days’ Sales in Inventory ratio has increased in comparison with last year. We can conclude that
a. Its inventory turnover ratio must have declined.
b. Its inventory turnover ratio must have also increased.
c. Its Number of Days’ Sales in Receivables must have declined.
d. Its Number of Days’ Sales in Receivables must have increased.
2. If the debt-to-equity ratio rises we can conclude that
a. The shareholders should expect a higher return on equity than otherwise.
b. The shareholders should be less worried about the financial risk of the company.
c. The bondholders should be less worried about the financial risk of the company.
d. The company’s return on equity must have risen as well.
3. A reduction in inventory turnover ratio likely implies that
a. The company holds less inventory for each dollar of cost of goods sold.
b. The company’s ability to meet sudden increases in demand has deteriorated.
c. The liquidity situation of the company has worsened.
d. The company is less likely to experience work stoppages due to lack of inventory parts.