Liquidity/solvency And Operational Ratios

Question 1

What are the general types of ratios

Answer 1

Liquidity/solvency
Operational activities
Profitability
Equity/investing leverage

Question 2

What is the formula for working capital

Answer 2

Current assets-current liabilities

Question 3

List the formula for acid test or quick ratio

Answer 3

(Cash + net receivables + marketable securities) / current liabilities

Question 4

List the formula for times interest earned

Answer 4

(Net income + interest expense + income tax expense) / interest expense

Question 5

State the formula for times preferred dividend

Answer 5

Net income/ annual preferred dividend obligation

Question 6

True or false, the acid test ratio can be greater, but not less than, the working capital ratio

Answer 6

False

Question 7

If the cost of goods sold increases while average inventory remains constant, there has been a more efficient use of inventory?

Answer 7

True

Question 8

If the number of days sales in average receivables increases , then the operating cycle will increase?

Answer 8

True

Question 9

If current assets are $50,000 and current liabilities are $25,000 the working capital ratio is 2.00?

Answer 9

True

Question 10

In computing the times preferred dividends earned ratio, income tax expense has to be added back to net income, true or false?

Answer 10

False

Question 11

In computing the interest earned ratio, interest expense and income tax expense have to be added back to net income, true or false?

Answer 11

True

Question 12

Is cash both a current and quick asset?

Answer 12

Yes

Question 13

If on December 31st all cash was used to reduce accounts payable, what would happen to the current ratio and quick ratio?

Answer 13

Currenwould increase and quicquick would decrease