CISM 3330

Term
1 / 15
Liquidity Ratios
Click the card to flip 👆
Terms in this set (15)
Liquidity Ratios
measure how effectively a firm is managing its assets.
Land Land Land, Inc. has a total asset turnover ratio of 3.0. The average total asset turnover ratio for the firm's industry is 2.5. Based on this information you know that
LLL more efficiently utilizes its assets than the average firm in the industry.
Profitability ratios
show the relationship of a firms cash and other current assets to its current liabilities
Which of the following is most correct:
A firm with financial leverage has a larger equity multiplier than an otherwise identical firm with no debt in its capital structure.
Which of the following is most correct?
A large current ratio (relative to competitors) is "good" from the standpoint of liquidity, but could damage profitability.
Land Land Land, Inc. has a return on common equity of 30%. The average return on common equity for the firm's industry is 25%. Based on this information you know that:
LLL generates more income for shareholders than the average firm in the industry.
Turnover ratios (such as inventory turnover, fixed assets turnover, and total assets turnover) focus primarily on how effectively the firm uses its assets to generate revenue.
True
All else being equal, which of the following will increase a companys current ratio?
an increase in accounts receivable
Market value ratios:
give an indication of what investors think of the firms performance and future prospects.
If sales, assets, and common equity remain constant, but the profit margin on sales goes up, which of the following should also be true?
the return on total assets will go up
Basic earning powershows the raw earnings power of the firms assets before the influence of taxes and leverage.The examination of ratios over time is called:Trend analysisLand Land Land, Inc. has a current ratio of 2.0. The average current ratio for the firm's industry is 2.5. Based on this information you know that:LLL is less liquid than the average firm in the industry.Land Land Land, Inc. has a current ratio of 2.0. The average current ratio for the firm's industry is 1.5. Based on this information you know that:LLL is more liquid than the average firm in the industry.Land Land Land, Inc. has a debt ratio of 0.3. The average debt ratio for the firm's industry is 0.4. Based on this information you know thatLLL has relatively less debt than the average firm in the industry.