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1. |
Ratios need to be evaluated against some base. What types of information can be used? |
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2. |
Explain what liquidity means. When a corporation is becoming less liquid, what are the implications for shareholders? For creditors? |
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3. |
How is it possible that a corporation earning net income each year is becoming less liquid? |
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4. |
What ratios can be calculated to evaluate liquidity? Explain what each one indicates. |
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5. |
a. |
Define working capital. Distinguish between the current ratio and the acid-test ratio. |
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“The current ratio is, by itself, inadequate to measure liquidity.” Discuss this statement. |
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6. |
Two firms have the same amount of working capital. Explain how it is possible that one is able to pay off short-term creditors, while the other firm cannot. |
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7. |
Management decisions relating to accounts receivable and inventory can affect liquidity. Explain. |
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8. |
What is one means to evaluate the management of accounts receivable? inventory? |
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9. |
Discuss the advantages and disadvantages of decreasing number of days of sales in inventory. |
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10. |
What is the revenue operating cycle? How is its calculation useful in evaluating liquidity? |
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11. |
Identify and explain six ratios (and any associated calculations) that evaluate a corporation’s profitability. What does each ratio indicate? |
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12. |
Why are analysts and investors concerned with the financial structure of a corporation? |
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13. |
Is the reliance on creditor financing good or bad? Explain its impact on net income. |
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14. |
Discuss the advantages and disadvantages of short-term debt financing compared to long-term debt financing. |
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15. |
Identify and explain ratios that evaluate financial returns for investors. |
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16. |
Distinguish between horizontal and vertical analysis of financial statements. |
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17. |
(Appendix) Describe the components of the Scott formula. |
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