Finance Quiz Regarding Ratios

A Review of Accounting, Financial Statements and Taxes, Chapter 2

QUESTION 1

You wish to know how well a company is managing its accounts receivable and inventory. You will be looking at:

a. Liquidity ratios

b. Leverage ratios

c. Activity or asset management ratios (these terms are used interchangeably)

d. Profitability ratios

QUESTION 2

A company's ability to pay its loans would be captured in the _____ ratio

a. Debt

b. Times interest earned

c. Debt to equity

d. Acid test

QUESTION 3

A company has the following ratios:

2012 2013 2014

Current ratio 2.4 2.3 2.1

Debt ratio 0.6 0.5 0.3

Cash coverage 5.6 7.2 8.1

Inventory turns 3.2 3.6 3.9

What is true of this company?

a. Becoming more liquid evidenced by its cash coverage

b. Increasing its investment in inventory

c. Improving its ability to borrow

d. Becoming less liquid as evidenced by its debt ratio

QUESTION 4

Apex Company reports:

Depreciation 50

COGS 700

Sales 1,000

SG&A 100

Its peer group has a gross profit margin of 25%. How does Apex compare to its peers?

a. Apex 15% gross profit margin is inferior to its peer group

b. Apex 20% gross profit margin is inferior to its peer group

c. Apex 30% gross profit margin is superior to its peer group

d. Apex 25% gross profit margin is the same as its peer group--no better or worse

QUESTION 5

A company reports the following:

A company has the following ratios:

2012 2013 2014

Current ratio 2.4 2.3 2.1

Debt ratio 0.6 0.5 0.3

Cash coverage 5.6 7.2 8.1

Inventory turns 3.2 3.6 3.9

Which of the following is a correct statement?

a. The company is becoming less liquid as evidenced by the cash coverage ratio

b. The company is reducing its investment in accounts receivable

c. The owners are financing an increasing percentage of assets

d. The company is carrying more inventory than in previous years

QUESTION 6

Ark Corporation reports the following:

Current ratio

2012 2013 2014

Ark Corp. 2.2 2.0 1.7

Industry Norm 2.3 1.9 1.5

Which of the following statements is true?

a. Ark is becoming less liquid relative to its peer group

b. Ark has about the same liquidity as its peer group and both are improving

c. Ark is improving its liquidity relative to its peer group

d. Ark is becoming less liquid, but is still slightly more liquid than its peers

QUESTION 7

Exlection's average collection period has been increasing over the past several years. This will have what effects on the company's current ratio, quick ratio and statement of cash flows, respectively?

a. Increase, increase, increase cash flow from operating activities

b. Increase, increase, decrease cash flow from operating activities

c. Decrease, decrease, increase cash flows from operating activities

d. Decrease, decrease, decrease cash flows from operating activities

QUESTION 8

Tramson Corp has experienced steady increases in its inventory turns over the past several years. Indicate the impact of this on the company's current ratio, quick ratio, and statement of cash flows, respectively.

a. Decrease, no change, increase in cash flow from operating activities

b. Decrease, decrease, increase in cash flow from operating activities

c. Increase, increase, decrease in cash flow from operating activities

d. Increase, no change, decrease in cash flow from operating activities

QUESTION 9

A company reports the following financial information: Inventory $170; Accounts Receivable $293; Cash $112; Prepaid expenses $352; credit sales $1,995. How long does it take to collect its credit sales?

QUESTION 10

Dana reports Inventory of $2,526,551, Cash of $972,069, COGS of $11,265,528, and Accounts Receivable of $2,189,378. Its benchmark peer group turns its inventory 7.4 times a year. What would Dana's new inventory level be if it experienced the same number of turns as its peer group?

QUESTION 1 You wish to know how well a company is managing its accounts receivable and inventory. You will be looking at: a. Liquidity ratios b. Leverage ratios c. Activity or asset management ratios (these terms are used interchangeably) d. Profitability ratios QUESTION 2 A company's ability to pay its loans would be captured in the _____ ratio a. Debt b. Times interest earned c. Debt to equity d. Acid test QUESTION 3 A company has the following ratios: 2012 2013 2014 Current ratio 2.4 2.3 2.1 Debt ratio 0.6 0.5 0.3 Cash coverage 5.6 7.2 8.1 Inventory turns 3.2 3.6 3.9 What is true of this company? a. Becoming more liquid evidenced by its cash coverage b. Increasing its investment in inventory c. Improving its ability to borrow d. Becoming less liquid as evidenced by its debt ratio QUESTION 4 Apex Company reports: Depreciation 50 COGS 700 Sales 1,000 SG&A 100 Its peer group has a gross profit margin of 25%. How does Apex compare to its peers? a. Apex 15% gross profit margin is inferior to its peer group b. Apex 20% gross profit margin is inferior to its peer group c. Apex 30% gross profit margin is superior to its peer group d. Apex 25% gross profit margin is the same as its peer group--no better or worse QUESTION 5 A company reports the following: A company has the following ratios: 2012 2013 2014 Current ratio 2.4 2.3 2.1 Debt ratio 0.6 0.5 0.3 Cash coverage 5.6 7.2 8.1 Inventory turns 3.2 3.6 3.9 Which of the following is a correct statement? a. The company is becoming less liquid as evidenced by the cash coverage ratio b. The company is reducing its investment in accounts receivable c. The owners are financing an increasing percentage of assets d. The company is carrying more inventory than in previous years QUESTION 6 Ark Corporation reports the following: Current ratio 2012 2013 2014 2.2 2.0 1.7 Industry Norm 2.3 1.9 1.5 Ark Corp. Which of the following statements is true? a. Ark is becoming less liquid relative to its peer group b. Ark has about the same liquidity as its peer group and both are improving c. Ark is improving its liquidity relative to its peer group d. Ark is becoming less liquid, but is still slightly more liquid than its peers QUESTION 7 Exlection's average collection period has been increasing over the past several years. This will have what effects on the company's current ratio, quick ratio and statement of cash flows, respectively? a. Increase, increase, increase cash flow from operating activities b. Increase, increase, decrease cash flow from operating activities c. Decrease, decrease, increase cash flows from operating activities d. Decrease, decrease, decrease cash flows from operating activities QUESTION 8 Tramson Corp has experienced steady increases in its inventory turns over the past several years. Indicate the impact of this on the company's current ratio, quick ratio, and statement of cash flows, respectively. a. Decrease, no change, increase in cash flow from operating activities b. Decrease, decrease, increase in cash flow from operating activities c. Increase, increase, decrease in cash flow from operating activities d. Increase, no change, decrease in cash flow from operating activities QUESTION 9 A company reports the following financial information: Inventory $170; Accounts Receivable $293; Cash $112; Prepaid expenses $352; credit sales $1,995. How long does it take to collect its credit sales? QUESTION 10 Dana reports Inventory of $2,526,551, Cash of $972,069, COGS of $11,265,528, and Accounts Receivable of $2,189,378. Its benchmark peer group turns its inventory 7.4 times a year. What would Dana's new inventory level be if it experienced the same number of turns as its peer group