1st Periodical Exam

Question 1

Provide insight of the firm’s capability to pay its current obligations.

Answer 1

Liquidity Ratio

Question 2

It is the first item in the financial analysis that creditors/suppliers look into ascertain whether they will grant credits or not to the debtors.

Answer 2

Liquidity Ratio

Question 3

They measure the ability of the business firm to pay off short-term obligations as they mature.

Answer 3

Liquidity Ratio

Question 4

Shows the firm’s current assets to its current liabilities.

Answer 4

Liquidity Ratio

Question 5

Liquidity Rations are as follows:

Answer 5

1. Current Ratio
2. Quick Acid Test Ratio

Question 6

Indicates the extent to which current liabilities are covered by current assets.

Answer 6

Current Ratio

Question 7

This is the most commonly used indicator of the extent to which short-term debt are covered by current assets.

Answer 7

Current Ratio

Question 8

Formula of current ratio:

Answer 8

Current ratio = current assets/ current liabilities x 100

Question 9

Asset that can easily be converted to cash.

Answer 9

Current Asset

Question 10

It has more stringent test of liquidity than current ratio.

Answer 10

Quick Ratio

Question 11

It excludes current assets other than cash, marketable securities, and accounts receivable.

Answer 11

Quick Ratio

Question 12

Meant to reflect firm’s ability to pay its short-term obligations except it uses the most liquid current assets as the numerator.

Answer 12

Quick Ratio

Question 13

The higher it is, the more liquid the firm is.

Answer 13

Quick Ratio

Question 14

Quick Ratio formula:

Answer 14

Quick Ratio = Cash + Marketable Securities + Accounts Receivable / Current Liabilities x 100

Question 15

Other term of Quick Ratio

Answer 15

Acid-test Ratio

Question 16

Quick assets formula

Answer 16

Quick Assets = Cash + Trading Securities + Trade Receivables

Question 17

Is a more stringent measure of the liquidity status of a business firm since some current assets are not included in the computation.

Answer 17

Quick Ratio or Acid-Test Ratio

Question 18

Quick assets include only the following: ____, ______ _________, _____ __________.

Answer 18

cash, trading securities, and trade receivables.

Question 19

Are easily convertible to cash without significantly reducing the value of these particular assets.

Answer 19

Trading securities and trade receivables

Question 20

Measures the velocity of conversion of trade receivables into cash during the year.

Answer 20

Receivable Turnover

Question 21

Answers the question: How many times during the year has a receivable been converted to cash?

Answer 21

Receivable Turnover

Question 22

Considered an asset management ratio since it measures the effectiveness of management handlings its resources

Answer 22

Receivable Turnover

Question 23

Measures efficiency of the collection effort and credit policy of the business.

Answer 23

Receivable Turnover

Question 24

Receivable Turnover formula:

Answer 24

Receivable Turnover = Net Credit Sales / Average Trade Receivable

Question 25

Average Trade Receivable formula

Answer 25

Average Trade Receivable = Receivable beginning + Receivable End / 2