FINANCIAL MANAGEMENT-MGMT45062

1. Financial ratios are used to weigh and evaluate the operational performance of the firm.

2. A banker or trade creditor is most concerned about a firm's profitability ratios.

3. The current ratio is a more severe test of a firm's liquidity than the quick ratio.

4. Which of the following is not considered to be a profitability ratio?

5. A firm has a debt-to-equity ratio of 40%, a debt of $250,000 and a net income of $100,000. The return on equity is:

6. If sales increase and accounts receivable decrease, would the average collection period decrease or increase and why?

7. For a given level of profitability as measured by profit margin, the firm's return on equity will:

8. In addition to comparison with industry ratios, why is it also helpful to analyze ratios using trend analysis and historical comparisons?

9. Heavy use of long-term debt can be of benefit to a firm, although it adds to the firm's overall level of risk.

10. If the company's accounts receivable turnover is incerasing, the average collection period

FINANCIAL MANAGEMENT-MGMT45062

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