Chapter 4

Question 1

current ratio

Answer 1

indicates degree of liquidity comparing current assets to current liabilities

higher = more liquidity

Question 2

acid-test ratio

Answer 2

more stringent(strict) method liquidity because it excludes inventories and other current assets

higher = more liquidity

Question 3

average collection period

Answer 3

expresses how rapidly the firm is collecting its credit accounts

lower = more liquid

Question 4

accounts receivable turnover

Answer 4

expresses how often A/R are turned over during a year

higher = better quality

Question 5

inventory turnover

Answer 5

number of time a firms inventories are sold and replaced during the year

higher = faster

Question 6

price/earnings ratio

Answer 6

price the market places on $1 of the firms earnings

higher = investors paying more

Question 7

price/book ratio

Answer 7

compares market value of a share of stock to the book value

Question 8

economic value added

Answer 8

measure a firms economic profit