16. Which of the following would increase a company's current ratio (note: assume that the company's current ratio is presently equal to 2.0 )? Choose ALL that apply (this is an all or nothing question-you must correctly choose all correct answers to receive any credit for this question). a. Increase notes payable (i.e., borrow short term) to finance additional fixed assets. b. Issue long-term debt to buy inventory. c. Sell common stock to pay off the company's notes payable balance. d. Sell fixed assets to reduce accounts payable. e. Implement a "just-in-time" inventory policy that reduces the company's average inventory balance by 50 percent. The reduction in inventory will be matched with an equal decrease in accounts payable. f. An increase in annual sales that increases the company's accounts receivable balance. This increase in accounts receivable will be matched by an equal increase in notes payable. 17. Assume that for a given firm, the gross profit margin in 2021 was equal to the gross profit margin in 2020, but the net profit margin in 2021 was lower than the net profit margin in 2020. This could have happened if a. The company's cost of goods sold increased in 2021 relative to sales. b. The company's sales increased in 2021 relative to expenses. c. The U.S. Congress increased the tax rate in 2021. d. The company decreased dividends paid to common stockholders in 2021 . e. The company increased the number of shares of common stock outstanding in 2021 . 18. Which group of ratios measure how effectively the firm is using its assets? a. Liquidity ratios. b. Debt ratios. c. Coverage ratios. d. Profitability ratios. e. Activity ratios. f. None of the above. 19. Which of the following ratios is considered a profitability measure? a. Inventory turnover ratio. b. Fixed asset turnover ratio. c. Price-earnings ratio. d. Cash conversion period. e. Return on Assets (ROA). f. Debt ratio (D/A). 20. Firm A has a Return on Equity (ROE) equal to 24%, while firm B has an ROE of 15% during the same year. Both firms have a total debt ratio (D/V) equal to 0.8. Firm A has an asset turnover ratio of 0.9, while firm B has an asset turnover ratio equal to 0.4. From this we know that a. Firm A has a higher net profit margin than firm B. b. Firm A has a lower net profit margin than firm B. c. Firm A and B have the same net profit margin. d. There is not enough information provided to determine whether Firm A has a higher, lower or the same net profit margin as Firm B. 16. Which of the following would increase a company's current ratio (note: assume that the company's current ratio is presently equal to 2.0 )? Choose ALL that apply (this is an all or nothing question-you must correctly choose all correct answers to receive any credit for this question). a. Increase notes payable (i.e., borrow short term) to finance additional fixed assets. b. Issue long-term debt to buy inventory. c. Sell common stock to pay off the company's notes payable balance. d. Sell fixed assets to reduce accounts payable. e. Implement a "just-in-time" inventory policy that reduces the company's average inventory balance by 50 percent. The reduction in inventory will be matched with an equal decrease in accounts payable. f. An increase in annual sales that increases the company's accounts receivable balance. This increase in accounts receivable will be matched by an equal increase in notes payable. 17. Assume that for a given firm, the gross profit margin in 2021 was equal to the gross profit margin in 2020, but the net profit margin in 2021 was lower than the net profit margin in 2020. This could have happened if a. The company's cost of goods sold increased in 2021 relative to sales. b. The company's sales increased in 2021 relative to expenses. c. The U.S. Congress increased the tax rate in 2021. d. The company decreased dividends paid to common stockholders in 2021 . e. The company increased the number of shares of common stock outstanding in 2021 . 18. Which group of ratios measure how effectively the firm is using its assets? a. Liquidity ratios. b. Debt ratios. c. Coverage ratios. d. Profitability ratios. e. Activity ratios. f. None of the above. 19. Which of the following ratios is considered a profitability measure? a. Inventory turnover ratio. b. Fixed asset turnover ratio. c. Price-earnings ratio. d. Cash conversion period. e. Return on Assets (ROA). f. Debt ratio (D/A). 20. Firm A has a Return on Equity (ROE) equal to 24%, while firm B has an ROE of 15% during the same year. Both firms have a total debt ratio (D/V) equal to 0.8. Firm A has an asset turnover ratio of 0.9, while firm B has an asset turnover ratio equal to 0.4. From this we know that a. Firm A has a higher net profit margin than firm B. b. Firm A has a lower net profit margin than firm B. c. Firm A and B have the same net profit margin. d. There is not enough information provided to determine whether Firm A has a higher, lower or the same net profit margin as Firm B
