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Chapter 13: 1. Ratios need to be evaluated against some base. What types of information can be used? 2. Explain what liquidity means. When a corporation is becoming less liquid, what are the implications for shareholders? for creditors? 3. How is it possible that a corporation earning net income each year is becoming less liquid? 4. What ratios can be calculated to evaluate liquidity? Explain what each one indicates. 5. a. Define working capital. Distinguish between the current ratio and the acid-test ratio. b. "The current ratio is, by itself, inadequate to measure liquidity." Discuss this statement. 6. Two firms have the same amount of working capital. Explain how it is possible that one is able to pay off short-term creditors, while the other firm cannot. 7. Management decisions relating to accounts receivable and inventory can affect liquidity. Explain. 8. What is one means to evaluate the management of accounts receivable? inventory? 9. Discuss the advantages and disadvantages of decreasing number of days of sales in inventory. 10. What is the revenue operating cycle? How is its calculation useful in evaluating liquidity