CMA part 2

Which one of the following is the best indicator of long-term debt paying ability?

A. Debt-to-total assets ratio.
B-Working capital turnover.
C-Asset turnover.
D-Current ratio.

X firm has to increase its acid test ratio above the current 0.8 level in order to comply with the terms of a loan agreement. Which one of the following actions is most likely to produce the desired results?

A-Expediting collection of accounts receivable
. B-Purchasing marketable securities for cash
. C-Selling auto parts on account
. D-Making a payment to trade accounts payable.

Companies with high degrees of financial leverage would be best characterized as having..

A-low current ratios.
B-zero coupon bonds in their capital structures.
C-high debt-to-equity ratios.
D-high fixed-charge coverage.

Solvency differ from liquidity from the perspective that……

A-Solvency is the ability to pay over the long-term; liquidity concerns the short term.
B-Solvency is not influenced by a company’s capital structure; liquidity is based on it.
C-Solvency refers to bankruptcy; liquidity is a financial reporting concept.
D-Solvency is the ability to pay over the short-term; liquidity concerns the long term.

Which one of the following factors would result in an increase in cash?

A-Decrease in the accrued vacation liability.
B-Increase in the speed with which accounts payable invoices are paid.
C-Reduction of days' sales outstanding of accounts receivable.
D-Increase in the level of inventory held.

Firm W has a fixed asset turnover ratio of 5 times. In contrast, the ratio is 2 times for most firms in its industry. The rationale is…

. A-W has a higher net profit margin percentage.
B- W has much older plant facilities than the rest of the industry.
C.-W uses just-in-time (JIT) techniques to minimize investment in finished goods.
D-W gives short payment terms to its customers which result in fast collections.

Accounts receivable turnover will normally decrease as a result of:

A-An increase in cash sales in proportion to credit sales.
B-A significant sales volume decrease near the end of the accounting period
. C-A change in credit policy to lengthen the period for cash discounts
. D-The write-off of a credit loss using the allowance method.

A change in market price of a firm’s common stock will immediately affect its

A-Return on equity.
B-Dividend payout ratio.
C-Dividend yield.
D-Debt to net worth ratio.

Firm x issued a 75% stock dividend. This will reduce ….

A- return on operating assets.
B-current ratio
C- debt-to-equity ratio.
D- book value per common share.

Identify the correct statement about book value per common share.

A-Book value per common share can be misleading because it is based on historical cost.
B-A market price per common share that is greater than book value per common share is an indication of an overvalued stock.
C-Book value per common share is the amount that would be paid to shareholders if the company were sold to another company.
D-Market price per common share usually approximates book value per common share.

CMA part 2

awais November 12, 2024

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