FIN ACCT 509 CH 8
Which statements about working capital are correct?
It is the excess of a firm's current assets over its current liabilities. It is expressed as a dollar amount, rather than as a financial ratio.
Which of the following statements are true regarding the acid-test ratio? (Choose every correct answer.)
Temporary cash investments are included in the numerator of the acid-test ratio. The acid-test ratio can be calculated as (Cash (including temporary cash investments) + accounts receivable) divided by current liabilities. The acid-test ratio is sometimes called the quick ratio.
Return on investment (ROI)
is normally calculated using net income as the measure of the return
Common expressions of return on investment (ROI) calculation include which of the following?
Operating income / Average operating assets Net income / Average total assets
Which of the following statements are true regarding the acid-test ratio?
The acid-test ratio uses the same denominator as does the current ratio. The acid-test ratio is a more conservative measure of liquidity than the current ratio. The acid-test ratio excludes merchandise inventory from the numerator.
Which statements correctly describe liquidity?
It is a firm's ability to meet its current obligations as they become due. It is measured by relating current assets and current liabilities as reported on the balance sheet.
