QUESTION: 153

Which of the following ratios demonstrate the company’s ability to meet its current obligations? These can help resolve one of the common controversies in business valuation: whether the company has any assets in excess of those required for its operating needs or, conversely, whether its assets fall short of its needs.

Liquidity ratios
Activity ratios
Leverage rations
Income statement coverage ratios

Answer(s): A

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QUESTION: 154

A single rule of thumb?? that, for example, a satisfactory ratio is 2.0:1?? is not widely followed in determining the current ratio, because of vastly different conditions typical in various industries, such as accounts receivable and collection periods and inventory turnover periods. As with most ratios, the adequacy of the current ratios for the given company can be better gauged by:

Percentage of sales and total assets
Comparison with industry norms than by comparison with any absolute standard
Comparison with a market leader than by comparison with any absolute standard
Comparison with a market leader than by comparison with industry norms

Answer(s): B

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QUESTION: 155

___________ is defined as the sum of cash and cash equivalents plus receivables (usually all current assets listed above inventory) divided by current liabilities. For most companies, the only other significant current asset is inventory??usually the slowest of the current assets is to be converted to cash.

Current ratio
Inventory turnover ratio
Quick (Acid-Test) ratio
Sales to Net Working Capital

Answer(s): C

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QUESTION: 156

The purpose of risk analysis is to ascertain the uncertainty of the income flows to the company’s various suppliers. Generally, there are two classes of the capital suppliers??those that provide equity capital and receive a fixed return and those:

That provides equity capital and receive a variable return but can participate in the company’s growth through increased future returns
That used to examine the uncertainty of income to the various suppliers
That provides equity capital and receive a variable return but can participate in the preparation of financial statements
That provides long-tem debt and receive a variable return but can participate in the preparation of financial statements

Answer(s): B

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QUESTION: 153

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QUESTION: 156