Which of the following would affect the Current Ratio (defined as Current Assets divided by Current Liabilities)? (Check all that apply)

A. Buy a machine with cash

B. Issue shares to pay down long-term debt

C. Buy inventory with cash

D. Collect on a receivable

Which of the following are true about interpreting the Current Ratio? (Check all that apply)

A. A higher current ratio is better

B. A higher current ratio means more safety in the short term

C. A high current ratio means you can't go bankrupt

D. Too high a current ratio means you may have too much invested in short-term assets, which may hurt your long-term profitability

Which of the following is a reason why Diluted Earnings Per Share is less than Basic Earnings Per Share for a firm? (Check all that apply)

A. Because the firm pays dividends

B. Because the firm has employee stock options that can turn into shares

C. Because the firm bought back shares during the year

D. Because the firm has debt and can take advantage of leverage

Which of the following will affect a firm's Leverage Ratio (defined as Total Liabilities divided by Total Stockholders' Equity)? (Check all that apply)

A. Paying a dividend to Shareholders

B. Issuing Long-Term Debt for cash

C. Generating Positive Net Income

D. Buying back shares with cash

Why don't firms increase their leverage as much as possible? (Check all that apply)

A. Having too much debt increases the interest rate firms have to pay on their loans

B. It will increase their tax bill

C. It will slow down the collection of receivables

D. It will increase their risk of bankruptcy

Which of the following will increase a firm's Return on Equity (ROE)? (Check all that apply)

A. Decreasing Profit Margins

B. Aggressive accounting methods

C. Increasing Return on Assets

D. Increasing leverage (assuming the firm is earning a higher return than what it pays out on debt)

Suppose a firm's Net Income = $500, total assets = $2000, total liabilities = $500, and total stockholders' equity = $1500. What is Return on Equity (ROE)?

A. 40%

B. 33%

C. 0%

D. 100%

Suppose a firm's sales for the year = $1200 and its average receivables balance is $200. What is the firm's Accounts Receivable Turnover Ratio, expressed in days (not times per year)?

A. 90 days

B. 0 days

C. 30 days

D. 61 days

E. 6 days

In the final video, we calculated a more sophisticated version of Return on Assets (ROA), which we defined as

ROA = [ Net Income + (1 - tax rate) x Interest Expense ] / Total Assets

Suppose Net Income = $1000, Total Assets = $5000, Interest Expense = $200, and the tax rate = 30%. What is ROA?

A. 21.2%

B. 24.0%

C. 20.0%

D. 22.8%

E. 16.2%

The primary thing that this more sophisticated measure of ROA better captures that the simpler version, defined as ROA* = Net Income / Total Assets, is:

A. It better measures how we did with our assets, irrespective of the mix of debt and equity used to finance those assets

B. It adjusts for non-recurring items in net income

C. It takes out non-cash charges that are in net income

D. It gives a higher number, so it makes the firm look better