Question 1

Even though Firm A's current ratio exceeds that of Firm B, Firm B's quick ratio might exceed that of A. However, if A's quick ratio exceeds B's, then we can be certain that A's current ratio is also larger than that of B.

Accepted Answer

A) True 
 B)False

Question 2

If a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT?

Accepted Answer

A)  The lower the company's EBITDA coverage ratio, other things held constant, the lower the interest rate the bank would charge the
Firm. 
B)  Other things held constant, the higher the debt ratio, the lower
The interest rate the bank would charge the firm. 
C)  Other things held constant, the lower the debt ratio, the lower the
Interest rate the bank would charge the firm. 
D)  The lower the company's TIE ratio, other things held constant, the
Lower the interest rate the bank would charge the firm. 
E)  Other things held constant, the lower the current ratio, the lower
The interest rate the bank would charge the firm.

Question 3

High current and quick ratios always indicate that a firm is managing its liquidity position well.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements is CORRECT?

Accepted Answer

A)  If one firm has a higher debt ratio than another, we can be certain that the firm with the higher debt ratio will have the lower TIE ratio, as that ratio depends entirely on the amount of debt a firm
Uses. 
B)  A firm's use of debt will have no effect on its profit margin on
Sales. 
C)  If two firms differ only in their use of debt-i.e., they have identical assets, sales, operating costs, interest rates on their debt, and tax rates-but one firm has a higher debt ratio, the firm
That uses more debt will have a lower profit margin on sales. 
D)  The debt ratio as it is generally calculated makes an adjustment for the use of assets leased under operating leases, so the debt ratios of firms that lease different percentages of their assets
Are still comparable. 
E)  If two firms differ only in their use of debt-i.e., they have identical assets, sales, operating costs, and tax rates-but one firm has a higher debt ratio, the firm that uses more debt will
Have a higher profit margin on sales.

Exam 3: Analysis of Financial Statements

Even though Firm A's current ratio exceeds that of Firm B, Firm B's quick ratio might exceed that of A. However, if A's quick ratio exceeds B's, then we can be certain that A's current ratio is also larger than that of B.

If a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT?

High current and quick ratios always indicate that a firm is managing its liquidity position well.

Which of the following statements is CORRECT?