The balance sheet of Firm A shows the following:Cash & Cash equivalents 432Receivables 98Inventories 143Marketable securities 329Short-term loans 732Current portion of long-term debt 210The quick ratio of the firm equals ________.
Answer(s): A
The quick ratio is the current ratio calculated using only relatively liquid securities. These current assets are cash, marketable securities and receivables. Thus, Quick ratio = (cash + marketable securities + receivables)/ current liabilities In this case, Quick ratio = (432+98+329)/(732+210) = 0.91
Why is book value per share important?
Book value per share is often times used by firms in determining merger terms. Book value per share plays an important role in the analysis of financial statements since one method of valuation begins with the book value per share figure, to which an estimate of future earnings is added. An estimate of the future profitability of a firm can be based directly on the earnings capacity of its asset base.
With respect to depreciation methods, which of the following is true?
Accelerated methods cause depreciation expense to decrease over time. In later years, the straight- line method leads to higher depreciation compared to accelerated methods and hence, leads to lower taxes.
Which accounting principle is consistent with reporting financial results that can be compared with previous periods?
Answer(s): C
The consistency principle requires that an accounting procedure, once adopted by a company, remain in use from one period to the next unless users are informed of the change.
Which of the following best highlights a company's financial condition and overview of the results of operations?
Answer(s): E
Management's discussion and analysis provide a great deal of detail regarding the company's financial condition, the results of operations, favorable, or unfavorable trends, and significant events that have affected or will affect a firm.
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