3.6-3.8 Flashcards
A business that is bankrupt is not necessarily insolvent.
False
Without damaging their relationship with a supplier or customer, which of the following is preferred by businesses?
Debtor days to be as short as possible and creditor days to be as long as possible
Regardless of the outcome, bankruptcy will damage the reputation of the business and its owners
True
his ratio measures the average number of days it takes a company to pay its short-term debts to vendors from whom it has purchased supplies.
Creditor days
If a company chooses to increase its retained profit by not issuing dividends to its shareholders, which ratio would improve?
Gearing ratio
Which of the following could lead to a low inventory turnover ratio?
Overstocking of inventory
This ratio measures the extent to which the capital employed by a company is financed from loan capital.
Gearing ratio
A business that is insolvent is not necessarily bankrupt.
True
Which ratio would improve if a company removed slow-moving or obsolete stock from its line of inventory?
Stock (inventory) turnover
This ratio measures the average number of days it takes a company to collect its short-term debts from customers to whom it has sold goods.
Debtor days
A businesses requires a cash flow forecast in order to:
Plan for future periods of positive and negative cash flow
What is a prediction of the future cash inflows, cash outflows and net cash flow for a specific time period known as?
Cash flow forecast
Which of the following is a cash inflow?
Debtors
When a company has high liquidity, this means that:
The company’s assets can be easily converted into cash.
Liquidity can be defined as:
The ability to convert an asset to cash without loss of value
A business can be profitable and can still have negative cash flow
True
A business can have positive cash flow and still be unprofitable
True
Identify the term used to describe the amount of cash a company has in the bank at the beginning of the month.
Opening balance
Which of the following is likely to increase cash outflows?
Making cash payments only
Which investment appraisal technique calculates the time required for an investment to generate sufficient profit to cover the cost of the initial investment?
Payback period
Which investment appraisal technique requires estimating net cash flows in the future?
Average rate of return
Payback period
Net present value
Which investment appraisal technique considers the change in value of money over time (i.e. inflation)?
Net present value
Which of the following is a limitation of the Average Rate of Return investment appraisal technique?
It is more complex than the Payback Period method
It ignores inflation
It requires estimating the net cash flows in the futur
Which investment appraisal technique shows average annual forecasted profits from an investment as a percentage of the initial cost of the investment?
Average rate of return
