Question #7 Ratio Analysis Answer each of the ten (10) True or False questions b

Question

Question #7 Ratio Analysis Answer each of the ten (10) True or False questions below (1 point each): A. The Current Ratio is regarded as fundamental measurement of a company's liquidity 8. Normaly, an analyst would beieve tbat agameny with a curent ratio C. The acid test ratio is regarded primarily as a measure of a company's long term liquidity D. Usually a Quick Ratio of 1.5 to 1 is considered satisfactory E. Inventory Turnover is computed by dividing cost of goods sold by total assets F. Normally a relatively low Inventory Tunover is desirable G. Gross Profit Margin is a measure of the profit percentage per dollar of sales H. The four classifications of ratio analysis are liquidity ratio, fixed asset ratio, profitability ratio and T or F T or F T or F T or F T or F T or F T or F T or F efficiency ratios Liquidity ratios measure the ability of a business to meet long term obligations The Debt to Asset ratio measures the extent to which borrowed funds have been used to finance I. T or F J. T or F the acquisition of assets

Explanation / Answer

Ans :- A:- TRUE :- The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.

Ans B :- FALSE :- The current ratio is 3 which means the company’s currents assets are 3 times more than its current liabilities.A ratio of 2:1 or higher is considered satisfactory for most of the companies.

But If A company with high current ratio may not always be able to pay its current liabilities as they become due if a large portion of its current assets consists of slow moving or obsolete inventories.

Ans C :- FALSE :- the acid-test or quick ratio or liquidity ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately not a long term liquidity.

Ans D :- TRUE :- Usually a quick ratio of at least 1.5 to 1 would be preferred so that the company could pay its bill on time. Quick ratio of companies depend on the comapny ,the management polices and the types of industry .

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