Financial Analysis YN 2

If accounts payable increases significantly while other operating conditions remain unchanged, it may indicate that the company is conserving cash, which improves operating cash flow.

If a company has strong net income but a significant drop in operating cash flow, it could be due to an increase in accounts receivable or inventory.

A company has current assets of $500,000, including $200,000 in inventory, and current liabilities of $300,000. Its quick ratio is greater than 1.5

If a company uses cash to repay short-term debt, its current ratio will improve.

The quick ratio excludes prepaid expenses and inventory because they are not easily converted into cash.

A company with a current ratio of 2.5 and a quick ratio of 0.8 may have a large portion of current assets tied up in inventory.

If a company's accounts receivable increases significantly while liabilities remain unchanged, the quick ratio will improve.

If a company mistakenly records interest income as operating income, its operating profit will be overstated, but net income will remain unaffected.

If a company incorrectly records the purchase of machinery as an expense instead of a capital asset, its net income will be overstated and assets will be too high.

If revenue from a future contract is mistakenly recognized this year, both net income and retained earnings will be overstated.