Midterm Exam

The _________ ratio measures the firm’s ability to pay contractual interest payments.

•  times interest earned

• fixed-payment coverage

•  debt

• average payment period

The _________ ratio may indicate that the firm will not be able to meet interest obligations due on outstanding debt.

• debt

• net profit margin

• return on total assets

• times interest earned

The _________ ratio measures the proportion of total assets financed by the firm’s creditors.

• total asset turnover

• fixed asset turnover

• current

• debt

The following groups of ratios provide the information critical to the short-run operation of the firm.

• liquidity, activity, and profitability

• liquidity, activity, and common stock

• liquidity, activity, and debt

•  activity, debt, and profitability

The _________ ratios provide the information critical to the long-run operation of the firm.

• liquidity

• activity

• debt

• profitability

The _________ is useful in evaluating credit and collection policies.

• average payment period

• current ratio

• average collection period

• current asset turnover

If the inventory turnover is divided into 360, it becomes a measure of

• sales efficiency.

• the average age of the inventory.

• sales turnover.

• the average collection period.

A firm has a current ratio of 1; in order to improve its liquidity ratios, this firm might

• improve its collection practices, thereby increasing cash and increasing its current and quick ratios.

• improve its collection practices and pay accounts payable, thereby decreasing current liabilities and increasing the current and quick ratios.

• decrease current liabilities by utilizing more long-term debt, thereby increasing the current and quick ratios.

•  increase inventory, thereby increasing current assets and the current and quick ratios.

_________ are especially interested in the average payment period, since it provides them with a sense of the bill-paying patterns of the firm.

• Customers

• Stockholders

• Lenders and suppliers

• Borrowers and buyers

ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would be considered poor if its average collection period was

• 30 days.

• 36 days.

• 47 days.

• 57 days.