Question

1. What does a falling accounts receivable turnover ratio mean?

   1. Net sales are growing faster in relation to accounts receivable.

   2. The amount money needed to fund working capital is growing.

   3. Management is becoming more efficient in managing collections.

   4. Accounts receivable will a source of cash on the cash flow statement.

2. An analyst has built a forecast showing a rapidly rising Fixed Asset Turnover Ratio. What error has the analyst likely made?

   1. The net profit forecast is too low.

   2. The capex forecast is too low.

   3. The depreciation forecast is too low.

   4. The net sales forecast is too low.

3. What does a falling accounts receivable turnover ratio mean?

   1. Net sales are growing faster in relation to accounts receivable.

   2. The amount money needed to fund working capital is growing.

   3. Management is becoming more efficient in managing collections.

   4. Accounts receivable will a source of cash on the cash flow statement.

4. Why might a company decide not to pay out all of their free cash flow in dividends?

   1. The company may need to purchase more inventory due to strong sales demand.

   2. The company may want to buy a competitor.

   3. The company may need to repair or replace some existing equipment.

   4. Management may have decided that employees need a raise.

      1. Why is working capital management important?

Answer 1

1) Increasing accounting receivables turnover ratio means that management is inefficient in collecting accounts receivable and hence amount needed to fund working capital is growing . Hence option b is correct.

2) If the forecast showing a rapidly increasing fixed asset turnover ratio the error which has likely been made by the analyst is that the capex forecast is too low as if there is less of capex then denominator would be less and hence increasing fixed asset turnover ratio . In all other options the ratio is decreasing .option b

3) same as 1

4) If the company decides not to pay all its free cash flow in dividends as the company can use it to expand its business operations The company may need to purchase more inventory due to strong sales demand. hence option a is correct