Indicate the correct answer(s) by writing down the alphabetical letter relating to the correct answer(s) for each of the questions/statements below.

1. Which of the following usually is least important as a measure of short-term liquidity?

a. Quick ratio

b. Debt to equity ratio

c. Current ratio

d. Cash flows from operating activities

2. Which of the following is considered the least important as a measure of long- term solvency?

a. Quick ratio

b. Debt to equity ratio

c. Accounts payable turnover ratio

d. Proprietary ratio

e. Times interest cover ratio

3. In each of the past five years, the net sales of Ngisi Limited have increased at about half the rate of inflation, but net income has increased at approximately twice the rate of inflation. During this period, the companys total assets, liabilities and equity have remained almost unchanged. These relationships suggest (indicate all correct answers)

a. Management is successfully controlling costs and expenses

b. The company is selling more merchandise every year

c. The annual return on assets has been increasing

d. Financing activities are likely to result in a net use of cash

e. The return on equity has been increasing

4. From the viewpoint of a shareholder, which of the following do you consider of least significance?

a. The return on assets is consistently higher than the industry average

b. The return on equity has increased in each of the past three years

c. Net income is greater than the amount of working capital

d. The return on assets is greater than the rate of interest

5. If a companys current ratio declined in a year during which its quick ratio improved, which of the following is the most likely explanation?

a. Inventory is increasing

b. Inventory is declining

c. Receivables are being collected more rapidly than before

d. Receivables are being collected more slowly than before

6. In financial statements analysis, the most difficult items to identify is whether

a. The company will be liquid in the next six months

b. Profits have increased since the previous year

c. The company will be meeting its financing cost in the coming year

d. The market price of the shares will rise or fall over the next two months

7. Which of the following would not improve the current ratio?

a. Borrow short term to finance additional non-current assets

b. Issue long-term debt to buy inventory.

c. Sell ordinary shares to reduce current liabilities

b. Sell non-current assets to reduce accounts payable.

8. The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if

a. cost of goods sold increased relative to sales

b. sales increased relative to expenses

c. corporate tax increased

d. dividends were decreased

9. A company can improve (lower) its debt-to-total asset ratio by doing which of the following?

a. Borrow more.

b. Shift short-term debt to long-term debt.

c. Shift long-term debt to short-term debt.

d. Sell ordinary shares.

10. Which of the following statements (in general) is correct?

a. A low receivables turnover is desirable.

b. The lower the total debt-to-equity ratio, the lower the financial risk for a firm.

c. An increase in net profit margin with no change in sales or assets means a weaker return on investment.

d. The higher the tax rate for a firm, the lower the finance coverage ratio.

11. Which of the following statements is the least likely to be correct?

a. A firm that has a high degree of business risk is less likely to want to incur

financial risk.

b. There exists little or no negotiation with suppliers of capital regarding the

financing needs of the firm.

c. Financial ratios are relevant for making internal comparisons.

d. It is important to make external comparisons or financial ratios.

12. Which group of ratios measures how effectively the firm is using its assets?

a. Liquidity ratios.

b. Debt ratios.

c. Profitability ratios.

d. Activity ratios

13. Which group of ratios shows the extent to which the firm is financed with debt?

a. Liquidity ratios.

b. Debt ratios.

c. Profitability ratios

d. Activity ratios