Financial Management_Quiz1

Which one of the following is a use of cash?

• Decrease in fixed assets

• Decrease in inventory

• Increase in long-term debt

• Decrease in accounts payable

On a common-size balance sheet all accounts for the current year are expressed as a percentage of:

• sales for the period.

• total assets for the current year.

• the base year sales.

• total equity for the base year.

An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values.

• Increase in the cash ratio

• Increase in the net working capital to total assets ratio

• Decrease in the quick ratio

• Decrease in the cash coverage ratio

If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?

• 0

• 0.5

• 1.0

• 1.5

The cash coverage ratio directly measures the ability of a company to meet its obligation to pay:

• an invoice to a supplier.

• wages to an employee.

• interest to a lender.

• principal to a lender.

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ________ ratios.

• asset management

• long-term solvency

• short-term solvency

• profitability

Which one of the following accurately describes the three parts of the DuPont identity?

• Debt-equity ratio, capital intensity ratio, and profit margin

• Equity multiplier, profit margin, and total asset turnover

• Operating efficiency, equity multiplier, and profitability ratio

• Return on assets, profit margin, and equity multiplier

An increase in which of the following must increase the return on equity, all else constant?

• Total assets and sales

• Net income and total equity

• Total asset turnover and debt-equity ratio

• Equity multiplier and total equity

The most acceptable method of evaluating the financial statements is to compare the company's current financial:

• ratios to the company's historical ratios.

• statements to the financial statements of similar companies operating in other countries.

• ratios to the average ratios of all companies located within the same geographic area.

• statements to those of larger companies in unrelated industries.

Which one of the following statements is correct?

• Book values should always be given precedence over market values.

• Financial statements are rarely used as the basis for performance evaluations.

• Historical information is useful when projecting a company's future performance.

• Potential lenders place little value on financial statement information.