Investors use the annual report in order to form expectations about the firm's future cash flows and the riskiness of those cash flows. 1. True . b. False The times-interest-earned ratio is the only indication of a firm's ability and short-term debt obligations. a. True to meet its long-term 2. b. False 3. Which of the following statements is CORRECT? a. A reduction in inventories would have no effect on the current ratio. b. An increase in inventories would have no effect on the current ratio c. If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase. d. A reduction in the inventory turnover ratio will generally lead to an increase in the ROE. e. If a firm increases its sales while holding its inventories constant, then, other things held constant, its fixed assets turnover ratio will decline. Which is not a characteristic of a Revolving Loan? A firm can 4. apply for it when it really needs it . b. Costs regardless if you use it or not Positive signaling d. Relatively high cost of capital Type of debt .