TEST BANK
PrinciplesofFinance-TestBank-Ch6
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
Principles of Finance
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03/30/22 1
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
,PrinciplesofFinance-TestBank-Ch6
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
Principles of Finance
Chapter 6
Test Bank
Financial Analysis
These questions and problems can all be solved in a classroom setting using a handheld
financial calculator.
True or False Questions
1. A slow inventory turnover ratio translates into a higher number of days of inventory.
A. True
B. False
Section 6.2 LO 2 Easy
2. Liquidity ratios measure a firm’s level of profitability.
A. True
B. False
Section 6.3 LO 1 Easy
3. Market ratios measure a firm’s level of profitability.
A. True
B. False
Section 6.5 LO 2 Easy
4. The Dupont equation assesses a firm’s ability to generate a good rate of return on equity by
breaking down the drivers of a return on equity into component parts.
A. True
B. False
Section 6.6 LO 3 Easy
Multiple Choice Questions
1. A firm's management wants to improve its cash flows with regard to working capital and
wants to reflect this priority in its annual budget. What is an appropriate plan of action?
A. Stock up on inventory in order to never run out of stock
B. Extend credit terms to customers in order to gain more sales
C. Pay all bills and payables when due
D. Speeding up collection of accounts receivable from customers
Section 6.1 LO 1 Moderate
03/30/22 2
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
, PrinciplesofFinance-TestBank-Ch6
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
Principles of Finance
2. What does a firm need to do to improve liquidity?
A. Stock up on inventory in order to never run out of stock
B. Extend credit terms to customers in order to gain more sales
C. Pay all bills and payables when due
D. Speed up collection of accounts receivable from customers
Section 6.1 LO 1 Moderate
3. Investors invest in a firm because they are motivated by the potential return on their
investment. In evaluating a firm's potential for delivering that rate of return, what do they
most look for in a firm's projections?
A. The firm's plans to stock up on inventory in order to never run out of stock
B. The firm's plans to extend credit terms to customers in order to gain more sales
C. The firm's ability to pay dividends
D. The firm's ability to generate cash by liquidating its marketable securities portfolio
Section 6.1 LO 2 Moderate
4. An extract from a computer company’s 2021 financial statements follows:
Balance sheet As of December 31, 2021 As of December 31, 2020
Cash and equivalents 3,996 4,233
Accounts receivable 3,979 3,386
Financing receivables 3,912 3,794
Inventory 4,511 2,674
Other current assets 2,460 2,469
Total current assets 18,878 16,556
Notes payable and other short- 3,552 3,755
term borrowings
Accounts payable 7,004 5,383
Employee compensation and 1,778 1,391
benefits
Taxes on earnings 169 148
Deferred revenue 3,408 3,430
Accrued restructuring 290 366
Other accrued liabilities 4,486 4,265
Total current liabilities 20,687 18,738
Total assets 57,699 54,015
03/30/22 3
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
Principles of Finance
s
03/30/22 1
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
,PrinciplesofFinance-TestBank-Ch6
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
Principles of Finance
Chapter 6
Test Bank
Financial Analysis
These questions and problems can all be solved in a classroom setting using a handheld
financial calculator.
True or False Questions
1. A slow inventory turnover ratio translates into a higher number of days of inventory.
A. True
B. False
Section 6.2 LO 2 Easy
2. Liquidity ratios measure a firm’s level of profitability.
A. True
B. False
Section 6.3 LO 1 Easy
3. Market ratios measure a firm’s level of profitability.
A. True
B. False
Section 6.5 LO 2 Easy
4. The Dupont equation assesses a firm’s ability to generate a good rate of return on equity by
breaking down the drivers of a return on equity into component parts.
A. True
B. False
Section 6.6 LO 3 Easy
Multiple Choice Questions
1. A firm's management wants to improve its cash flows with regard to working capital and
wants to reflect this priority in its annual budget. What is an appropriate plan of action?
A. Stock up on inventory in order to never run out of stock
B. Extend credit terms to customers in order to gain more sales
C. Pay all bills and payables when due
D. Speeding up collection of accounts receivable from customers
Section 6.1 LO 1 Moderate
03/30/22 2
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
, PrinciplesofFinance-TestBank-Ch6
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
Principles of Finance
2. What does a firm need to do to improve liquidity?
A. Stock up on inventory in order to never run out of stock
B. Extend credit terms to customers in order to gain more sales
C. Pay all bills and payables when due
D. Speed up collection of accounts receivable from customers
Section 6.1 LO 1 Moderate
3. Investors invest in a firm because they are motivated by the potential return on their
investment. In evaluating a firm's potential for delivering that rate of return, what do they
most look for in a firm's projections?
A. The firm's plans to stock up on inventory in order to never run out of stock
B. The firm's plans to extend credit terms to customers in order to gain more sales
C. The firm's ability to pay dividends
D. The firm's ability to generate cash by liquidating its marketable securities portfolio
Section 6.1 LO 2 Moderate
4. An extract from a computer company’s 2021 financial statements follows:
Balance sheet As of December 31, 2021 As of December 31, 2020
Cash and equivalents 3,996 4,233
Accounts receivable 3,979 3,386
Financing receivables 3,912 3,794
Inventory 4,511 2,674
Other current assets 2,460 2,469
Total current assets 18,878 16,556
Notes payable and other short- 3,552 3,755
term borrowings
Accounts payable 7,004 5,383
Employee compensation and 1,778 1,391
benefits
Taxes on earnings 169 148
Deferred revenue 3,408 3,430
Accrued restructuring 290 366
Other accrued liabilities 4,486 4,265
Total current liabilities 20,687 18,738
Total assets 57,699 54,015
03/30/22 3
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
PrinciplesofFinance-TestBank-Ch6.docx
