1. Which of the following statements is correct?

a. The average collection period, also known as day's sales outstanding, or DSO, tells us how many days, on average, it takes a firm to pay for its purchases of inputs or raw material on credit.

b. Total Asset Turnover = Earnings Before Interest and Taxes / Total Assets.

c. Financial statements are an analysts microscope allowing them to get a better view of health of the industry and the economy than just looking at the raw financial ratios.

d. Current assets usually have a lower expected return than do fixed assets, so the shareholders would like to see that only the minimum amount of the companys capital is invested in current assets.

2. Which of the following statements is correct?

a. Generally, higher leverage ratios are preferred to low amount of debt but high debt levels are considered to be a good thing.

b. Average Collection Period = Accounts Payables / (Depreciation/360).

c. Low inventory turnover is considered to be good because it means that the opportunity costs of holding inventory are low, but if it is too low the firm may be risking inventory outages and the loss of customers.

d. Coverage financial ratios are similar to liquidity ratios in that they describe the ability of a firm to pay certain expenses.

3. Which of the following statements is correct?

a. The current ratio will always be less than the quick ratio, unless the firm has no inventory.

b. LTD to Equity = Long Term Debt / Total Assets.

c. Coverage ratios describe the quantity of funds available to cover certain expenses, particularly interest expense though this is not the only one.

d. Total Debt Ratio = Total Assets / Total Liabilities.

4. Which of the following statements is incorrect?

a. DuPont analysis refers to a method of decomposing the return on equity into its components to better understand the ROE and why it may have changed or why it is different than that of some other firm.

b. One overriding rule of ratio analysis is that a single ratio provides very little information and may be misleading, and therefore you should never draw conclusions from a single ratio.

c. Return on Common Equity = Net Income / Common Equity.

d. Inventories can easily be converted into cash with only small discounts and therefore it is considered as liquid asset.

5. Which of the following statements is incorrect?

a. Total Debt Ratio = Total Liabilities / Total Assets.

b. Accounts receivable can easily be converted into cash with only small discounts and therefore it is considered as liquid asset.

c. If the quick ratio is the same as the current ratio, it will indicate that inventories are higher than they should be.

d. The times interest earned ratio measures the ability of the firm to pay its interest obligations by comparing earnings before interest and taxes (EBIT) to interest expense.