Exercise 1

Question 1

financial ratios are used to….

Answer 1

compare risk and return of different firms

Question 2

financial ratios provide…

Answer 2

a
profile of a firm, its
economic characteristics and competetive strategy and its unique
operating,
Financial and
investment characteristics

Question 3

Activity Analysis evaluates…

Answer 3

revenue/output generated by the firms assets (describes relationship: operations <-> assets)

Question 4

Inventory turnover

Answer 4

COGS / avg. inventory

Question 5

Receivables turnover

Answer 5

Sales / avg. acc. receivables

Question 6

Payables turnover

Answer 6

Purchases / average acc. payable

purchases = COGS + delta inventory

Question 7

fixed asset turnover

Answer 7

Sales / avg. fixed inventory

Question 8

total asset turnover

Answer 8

sales / avg. total assets

Question 9

implication of inventory turnover

Answer 9

efficiency of the firms inventory management

Question 10

implication of receivable turnover ratio

Answer 10

efficiency of the firms credit policy

Question 11

implication of payables turnover

Answer 11

important source of financing

Question 12

implication of fixed assets turnover

Answer 12

level of sales generated by the investment in prod. capacity

Question 13

implication of total assets turnover

Answer 13

measure of overall investment efficiency

Question 14

short term ratios are…

Answer 14

inventory turnover
receivables turnover
payables turnover

Question 15

long term ratios are…

Answer 15

fixed asset turnover ratio
total asset turnover ratio

Question 16

problems of long term activity analysis

Answer 16

• sales growth is continuous, investment in capacity is discrete

management has discretionary power over:
- timing
- form
- financial reporting
… of the acquisition

accumulation of depreciation expenses improves turnover ratio without improvement in efficiency

Question 17

Operating Cycle consists of…

Answer 17

1. aquisition of inventory
2. payment for inventory
3. sale of product
4. cash collection