Financial Statements Analysis, Financial Ratios, and Cash Flows mock final part #2

Question 1

Casey Communications recently issued new common stock and used the proceeds to pay
off some of its short-term notes payable. This action had no effect on the company’s total
assets or operating income. Which of the following effects would occur as a result of this
action?

a. The company’s current ratio increased.
b. The company’s times interest earned ratio decreased.
c. The company’s basic earning power ratio increased.
d. The company’s equity multiplier increased.
e. The company’s debt ratio increased

Answer 1

a. The company’s current ratio increased.

Question 2

A firm wants to strengthen its financial position. Which of the following actions would
increase its current ratio?
a. Reduce the company’s days’ sales outstanding to the industry average and use the
resulting cash savings to purchase plant and equipment.
b. Use cash to repurchase some of the company’s own stock.
c. Borrow using short-term debt and use the proceeds to repay debt that has a maturity
of more than one year.
d. Issue new stock and then use some of the proceeds to purchase additional inventory
and hold the remainder as cash.
e. Use cash to increase inventory holdings.

Answer 2

d. Issue new stock and then use some of the proceeds to purchase additional inventory
and hold the remainder as cash.

Question 3

the total market value of a
firm’s equity.

Answer 3

market capitalization

Question 4

amounts owed to the firm by
customers who have purchased goods or services on credit

Answer 4

Accounts receivable