Which of the following is true about the quick ratio? a. The quick ratio is calculated by dividing the least liquid of current assets by current liabilities. b. Quick ratios will tend to be much larger than current ratio for manufacturing firms or other industries that have a lot of inventory. c. Inventory, being not very liquid, is subtracted from total current assets to determine the most liquid assets. d. Service firms that tend not to carry too much inventory will see significantly higher quick ratios than current ratios.

Which of the following is true about the quick ratio? a. The quick ratio is calculated by dividing the least liquid of current assets by current liabilities. b. Quick ratios will tend to be much larger than current ratio for manufacturing firms or other industries that have a lot of inventory. c. Inventory, being not very liquid, is subtracted from total current assets to determine the most liquid assets. d. Service firms that tend not to carry too much inventory will see significantly higher quick ratios than current ratios.

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter9: Metric-analysis Of Financial Statements

Section: Chapter Questions

Problem 5SEQ

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Which of the following statements is most correct? Select one: A. A company with a current ratio of 0.5, should purchase additional inventory on credit if it wants to improve this ratio. B. Return on assets is a function of two variables, the profit margin and current asset turnover. C. A company with a current ratio of 0. 5, should sell some of the existing inventory at cost if it wants to improve this ratio. D. Firms with low rates of return on stockholders’ equity tend to sell at relatively high ratios of market price to book value.
Which of the following provides the best description of the liquidity ratios? Current ratio is the strictest test for a firm's liquidity position. If Firm A has higher values of all liquidity ratios than Firm B, and both firms are in the similar industry, then Firm A is managing its liquidity better than Firm B. The quick ratio regards inventory as part of the current assets because it's more liquid than other types of current assets. Cash ratio between 0 and 0.5 is considered a safe range for a firm's liquidity. 00
Which of the following is true about the quick ratio? O It is a liquidity ratio. It measures the ability of the firm to pay off its short-term obligations without relying on inventory. OIt cannot exceed the current ratio. It is also called the acid-test ratio. All of the above answers are correct.
Which of the following statements are false? Select all that apply a. Liquidity ratios are used to measure the speed with which various accounts are converted into sales. b. When ratios of different years are being compared, inflation should be taken into consideration c. Return on total assets (ROA) is sometimes called return on investment d. Generally, inventory is concerned with the most liquid asset that a firm possesses. e. A P/E ratio of 20 indicates that investors are willing to pay $20 for each $1 of earnings.
1 When examining the current ratio and looking at the company's liquidity, which of the following ratios would NOT assist with evaluating liquidity? A) inventory turnover B) receivables turnover C) quick ratio D) profit margin
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Which one of the following is an advantage of LIFO? a. In periods of rising prices, less income taxes are paid b. In periods of rising prices, more holding gains are reported in net income c. Record keeping and financial statement preparation are easier d. Conservative income statement and balance sheet disclousures result from falling prices
Which is wrong about the use of financial statement analysis? a. Seasonality factors may contribute to a sort of distortion on the financial ratio’s trends. b. Activity ratios, such as profit margin and return on asset, tells how efficient the company uses its resources and assets c. Horizontal analysis of financial statements is conducted by analyzing inter-period financial statements d. The Liquidity of the company can be determined using acid-test ratio and current ratio
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The AFN equation and the financial statement–forecasting approach both assume that assets grow at relatively the same rate as sales. However, the relationship between assets and sales is often a little more difficult than that. In particular, some firms use regression analysis to predict the required assets needed to support a given level of sales. General Services Corp. has used its historical sales and asset data to estimate the following regression equations: Accounts Receivable = –$85,230 + 0.265(Sales) Inventories = $9,110 + 0.211(Sales) General Services Corp. currently has sales of $922,000, but it expects sales to grow by 20% over the next year. Use the regression models to calculate General Services Corp.’s forecasted values for accounts receivable and inventories needed to support next year’s sales. Forecasted Values for Next Year Accounts receivable Inventories Based on the next year’s accounts receivable and inventory…