Question

Which of the following is FALSE:

a. Companies get the proceeds from IPO and SPO, but they do not get cash directly when their securities are traded on the secondary market

b. Brokers and dealers are market makers on the secondary market

c. Companies are allowed to issue securities on the primary market only once which is known as IPO

d. Previously issued securities are traded on the secondary market

Which of the following is NOT a drawback of the current ratio:

a. The lack of trending information showing dynamic change of balance sheet composition

b. The current ratio uses current liabilities which is inappropriate. This is corrected by the quick ratio that uses total liabilities instead

c. It is difficult to compare across different industry groups

d. All current assets are treated equally which overestimates the ability of a firm to meet its current liabilities

Answer 1

The statement c) is false as the companies can issue the securities many times , the first one is Initial Public Offering (IPO) and the others are known as Further public offering (FPOs)

The statement b) is incorrect as Quick ratio = Liquid assets/ current liabilities. So, using current liabilities to measure Current ratio is not a drawback of Current ratio. In any case, to capture the effect of total liabilities, there are other ratios like Leverage or Debt ratio etc