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Ratios: Current Ratio: Quick Ratio: Times Interest Earned: ROE ROA Equity Multiplier Inventory Turnover 3.5241 2.0099 9.8141 16.32% 11.75% 1.3521 1.3341 Which of the following statements are true with respect to the Current Ratio, both in general and specifically referring to the values shown above, where the Current Ratio is defined as: Current Ratio = Current Asset/ Current Liabilities If the peer group average Current Ratio is 2.4, then this company has better liquidity than the average of its peersin general, a bank would find a Current Ratio of 3.52 very acceptable The firm has $3.52 in Current Assets for every $1.00 of Current Liabilities All statements presented are true Which of the following statements are true with respect to the Solvency Ratios, specifically the Equity Multiplier. The Equity Multiplier is defined as: Equity Multiplier = Assets / Owner's Equity An Equity Multiplier of 1.35 tells us that the firm has $1.35 in Assets for each $1.00 of Owner's Equity All statements presented are true The Solvency Ratios are designed to highlight the mix of debt and equity on the Balance Sheet The higher the Equity Multiplier, the more debt the firm has There are a number of Coverage Ratios, one of which is the Times Interest Earned.Ratio. Which of the following statements are true with respect to the Times Interest Earned Ratio, which is defined as follows: Times Interest Earned = EBIT / Interest Expense = The lower this ratio is, the less likely the company is to go bankrupt Banks would prefer a lower rather than a higher Times Interest Earned Ratio All statements presented are true A Times Interest Earned Ratio of 9.81 tells us that there is $9.81 of EBIT for each $1.00 of interest expense Which of the following statements are true with respect to the Profitability Ratios? In the list above, these are shown as ROA and ROE, where: ROA = Net Income / Total Assets, ROE = Net Income / Owner's Equity - The ROA ratio is a good measure of the firm's liquidity All statements presented are true The ROE ratio is a good measure of the firm's liquidity An ROE of 16.32% would suggest that the firm is generating $16.32 of Net Income for each $100 of Owner's Equity The P/E (Price/Earnings) Ratio is defined as: P/E ratio = Price per Common Share / Net Income per Common Share. Which of the following statements are true with respect to the P/E Ratio? A P/E Ratio of 13 would tell us that each Common Stock is selling for 13 times the Net Income per common share If you were an investor buying a Common Stock, you would hope that the P/E Ratio would go down after you purchased the shares. All statements presented are true If the firm's Net Income per Common Share remained the same but the P/E Ratio went down, the firm's stock price per Common Share would go up The DuPont Identity helps us to better understand why a firm might have a poor ROE (Return on Equity). We can write the DuPont Identity as follows: ROE = (Net Income / Sales) (Sales / Assets) (Assets/ Owner's Equity). Based on this, which of the following statements are true? If Sales remained constant but the firm sold off half of its Assets, the ROE would rise, ceteris paribus (assuming the Equity Multiplier remains constant) If Sales remained constant but Net Income fell, the ROE would rise, ceteris paribus (all else remaining equal) If Assets remain constant but Owner's Equity goes up, the ROE would rise, ceteris paribus. All statements presented are true

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