5.7 Learning Objective 5-7
1) Ratios are used only by company management, and not investors, to evaluate the financial health of a company.
2) The current ratio is a more stringent measure of a firm's ability to pay current liabilities than the quick ratio.
3) The higher the quick ratio, the easier it is to pay current liabilities.
4) In order to effectively evaluate the days' sales in receivables, it should be compared to the company's credit terms.
5) Days' sales in receivables tells a company how long it takes to collect its average level of receivables.
6) The quick ratio helps to measure a company's liquidity.
7) Which of the following is considered to be a more stringent measure of a company's ability to pay its current liabilities than the current ratio?
A) Accounts payable
B) Quick ratio
C) Liquidity ratio
D) Collection period
8) A measure of the ability of an entity to pay all of its current liabilities if they came due immediately is the:
A) debt ratio.
B) quick ratio.
C) liquidity ratio.
D) accounts receivable turnover.
9) The quick ratio and the number of days' sales in receivables measure:
A) a company's cash conversion cycle.
B) a company's profitability.
C) a company's liquidity.
D) all of the above
10) Days' sales in receivables can be computed in two logical steps. In the second step:
A) the collection period must be determined.
B) the average daily sales are computed.
C) the average daily sales are divided by the average net receivables.
D) the average net receivables are divided by the average daily sales.