Question

# Which of the following does not indicate increasing overall liquidity? A) an increasing current ratio B)...

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 strategy?
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.
True
False

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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