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linda_us, Master's Degree
Category: Multiple Problems
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Experience:  A tutor for Business, Finance, Accounts and other related topics.
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A firm with a Current Ratio of 2.0 is twice as profitable

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1. A firm with a Current Ratio of 2.0 is twice as profitable as a firm with a Current Ratio of 1.0.
True or False

2.All other factors being equal, a company that uses debt financing will have a higher return on equity (ROE) ratio than one that does not.
True or False

3.In general, firms want their Times Interest Earned ratio to be as low as possible.
True or False

4. A company whose Total Asset Turnover ratio is 1.0 is using its assets more efficiently than one whose ratio is 2.0.
True or False

5. A firm which has a relatively large amount of cash, accounts receivable, and inventory on its books and a relatively small amount of current liabilities would be considered:

6. If a firm's current ratio is less than 1.0, it indicates that:
The firm had negative net income for the year
The firm will be unable to pay its short term loans which come due this year
Current Assets are less than Current Liabilities
The firm is insolvent

7. If a firm's PE ratio was 22, you would know that:
Profits over Earnings = 22
The firm will probably not have any trouble meeting its debt obligations this year
The firm's stock price is expected to increase 22%
Investors are willing to pay 22 times the firm's EPS for a share of the firm's stock.

8. The Du Pont equation allows you to gain additional insight into a firm’s
Sources of ROE
Sales potential
Sources of income

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