If business conditions are stable
Answer the following multiple-choice questions:
a. If business conditions are stable, a decline in the number of days’ sales outstanding from one year to the next (based on a company’s accounts receivable at year-end) might indicate
1. A stiffening of the company’s credit policies.
2. That the second year’s sales were made at lower prices than the first year’s sales.
3. That a longer discount period and a more distant due date were extended to customers in the second year.
4. A significant decrease in the volume of sales of the second year.
b. Trading on equity (financial leverage) is likely to be a good financial strategy for stockholders of companies having
1. Cyclical high and low amounts of reported earnings.
2. Steady amounts of reported earnings.
3. Volatile fluctuation in reported earnings over short periods of time.
4. Steadily declining amounts of reported earnings.
c. The ratio of total cash, trade receivables, and marketable securities to current liabilities is
1. The acid-test ratio.
2. The current ratio.
3. Significant if the result is 2-to-1 or below.
d. The times interest earned ratio is a primary measure of
2. Long-term debt-paying ability.
e. The calculation of the number of times bond interest is earned involves dividing
1. Net income by annual bond interest expense.
2. Net income plus income taxes by annual bond interest expense.
3. Net income plus income taxes and bond interest expense by annual bond interest expense.
4. Sinking fund earnings by annual bond interest expense.