Ratios Flashcards
1
Q
What does the Operating Cycle consist of?
A
The Operating Cycle is the total period of time from the purchase of inventory to sale and then finally to collection of cash from receivables.
2
Q
Can fluctuating market prices affect the Quick Ratio?
A
Since the quick ratio includes short term investments (marketable securities) in the numerator and since short term investments are reported at fair market value, fluctuating market prices may adversely affect the ratio if the market price decreases.
3
Q
Successful use of leverage is evidenced by
A
Rate of return on investment greater than the cost of debt.
4
Q
What is the difference between ROA and ROE?
A
ROA measures operating performance independent of financing. ROE explicitly includes the amount and cost of financing.
