1. If the CEO of a large, diversified, firm were filling out a fitness report on a division manager (i.e., grading the manager), which of the following situations would be likely to cause the manager to receive a lower grade? In all cases, assume that other things are held constant.

Group of answer choices

The divisions basic earning power ratio is below the average of other firms in its industry.

The divisions total assets turnover ratio is above the average for other firms in its industry.

The divisions total debt to total capital ratio is below the average for other firms in the industry.

The divisions inventory turnover is 8, whereas the average for its competitors is 6.

The divisions DSO (days sales outstanding) is 31 days, whereas the average for its competitors is 36 days.

2.

If a bank loan officer were considering a companys loan request, which of the following statements would you consider to be CORRECT?

Group of answer choices

The lower the companys inventory turnover ratio, other things held constant, the lower the interest rate the bank would charge the firm.

Other things held constant, the higher the days sales outstanding ratio, the lower the interest rate the bank would charge.

Other things held constant, the lower the total debt to total capital ratio, the lower the interest rate the bank would charge.

The lower the companys TIE ratio, other things held constant, the lower the interest rate the bank would charge.

Other things held constant, the lower the current ratio, the lower the interest rate the bank would charge the firm.

3.

You observe that a firms ROE is above the industry average, but both its profit margin and equity multiplier are below the industry average. Which of the following statements is CORRECT?

Group of answer choices

Its total assets turnover must be above the industry average.

Its return on assets must equal the industry average.

Its TIE ratio must be below the industry average.

Its total assets turnover must be below the industry average.

Its total assets turnover must equal the industry average.

4.

Which of the following statements is CORRECT?

Group of answer choices

If a firm has high current and quick ratios, this always indicate that the firm is managing its liquidity position well.

If a firm sold some inventory for cash and left the funds in its bank account, its current ratio would probably not change much, but its quick ratio would decline.

If a firm sold some inventory on credit, its current ratio would probably not change much, but its quick ratio would decline.

If a firm sold some inventory on credit as opposed to cash, there is no reason to think that either its current or quick ratio would change.

The inventory turnover ratio and days sales outstanding (DSO) are two ratios that are used to assess how effectively a firm is managing its current assets.