Which of the following does not indicate increasing overall liquidity? A) an increasing current ratio B) an increasing quick ratio C)an increasing cash flow liquidity ratio D) an increasing cash conversion cycle
What is the relationship between the average collection
period and accounts receivable turnover?
When average collection period increases, the accounts receivable turnover decreases.
Both ratios are expressed in number of days.
Both ratios are expressed in number of times receivables are collected per year.
All of the above are correct..
A firm has the following financial data for a particular
fiscal year: Sales for the year $3,000 Some year-end balance sheet
figures: Cash $350 Accounts Receivable $750 Inventory $1,200 ------
Total Current Assets $2,300 Total Current Liabilities $1,500 The
firm’s current ratio, quick ratio, and average collection period
are (in order; use a 365-day year):
1.53, 0.73, 91.25 days
0.73, 2.00, 75.00 days
1.53, 0.73, 146.00 days
0.73, 1.53, 146.00 days
Why do firms use debt as part of their financing
Debt is a safer way to finance the firm than equity
Debt financing results in lower returns to equity
Debt financing is a way of fooling creditors
Debt financing is cheaper than equity financing
In analyzing a debtor, a trade creditor is primarily
concerned with the debtor’s profitability.
Answer D) an increasing cash conversion cycle
Explanation : current and quick ratio, cash flow ratio will increase the overall liquidity but cash conversation cycle do not increases the liquidity .It tells you the days to take investment into cash
Answer : when average collection period increases ,the accounts turnover ratio decreases
Explanation : collection period will reduces when turnover ratio decreased
Answer : 1.53, 0.73, 91.25 days
Explanation current ratio =2300/1500=1.53
Quick ratio =1100/1500=0.73
Collection period =365*750/3000=91.25 days
Answer :Debt financing is cheaper thany equity
Explanation : we have many reasons for debt is cheaper than equity 1)tax advantage 2) leverage increases
Explanation A creditor is primarily concerned with the profitability of debtors
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