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 a. True b. False 2 The times-interest-earned ratio is the only indication of a firm's ability to meet its long-term and short-term debt obligations. a. True 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. 4. Which is not a characteristic of a Revolving Loan? a. A firm can apply for it when it really needs it b. Costs regardless if you use it or not c. Positive signaling d. Relatively high cost of capital Type of debt e