60.Whichofthe followingstatementsaboutratioanalysisisincorrect? a.Classifyinga large,well-diversifiedfirmintoa singleindustryoftenisdifficultbecausemanyofthefirm's divisionsareinvolvedwithdifferentproductsfromdifferentindustries. b.Asaruleofthumb,itis safeto concludethatanyfirmwithacurrentratiogreaterthan1.0shouldbeableto meetits currentobligations,thatis, paybillsthatcomedueinthecurrentperiod.[Currentratio=(Current assets)/(Currentliabilities)] c.Sometimesfirmsattempttouse"windowdressing"techniquestomaketheirfinancialstatementslookbetter thantheyactuallyarein thecurrentperiod. d.Computingthe valuesofthe ratiosisfairlysimple;the toughestandmostimportantpartofratioanalysisis interpretationofthe valuesderivedfromthe computations. e.Generalconclusionsabouta firmshouldnotbemadebyexaminingoneora fewratios,ratioanalysisshould becomprehensive. b ANSWER: Medium DIFFICULTY: Ratioanalysis TOPICS: 61.Yesterday,BickslerCorporationpurchased(andreceived)rawmaterialsoncreditfromitssupplier.Allelse equal,if Bicksler'scurrentratiowas2.0beforethepurchase,whateffectdidthistransactionhaveonBicksler'scurrent ratio? a.increased b.decreased c.stayedthesame d.Thereisnotenoughinformationtoanswerthisquestion. e.Noneoftheaboveisacorrectanswer. b ANSWER: Medium DIFFICULTY: Currentratio TOPICS:
60.Whichofthe followingstatementsaboutratioanalysisisincorrect? a.Classifyinga large,well-diversifiedfirmintoa singleindustryoftenisdifficultbecausemanyofthefirm's divisionsareinvolvedwithdifferentproductsfromdifferentindustries. b.Asaruleofthumb,itis safeto concludethatanyfirmwithacurrentratiogreaterthan1.0shouldbeableto meetits currentobligations,thatis, paybillsthatcomedueinthecurrentperiod.[Currentratio=(Current assets)/(Currentliabilities)] c.Sometimesfirmsattempttouse"windowdressing"techniquestomaketheirfinancialstatementslookbetter thantheyactuallyarein thecurrentperiod. d.Computingthe valuesofthe ratiosisfairlysimple;the toughestandmostimportantpartofratioanalysisis interpretationofthe valuesderivedfromthe computations. e.Generalconclusionsabouta firmshouldnotbemadebyexaminingoneora fewratios,ratioanalysisshould becomprehensive. ANSWER: b DIFFICULTY: Medium TOPICS: Ratioanalysis 61.Yesterday,BickslerCorporationpurchased(andreceived)rawmaterialsoncreditfromitssupplier.Allelse equal,if Bicksler'scurrentratiowas2.0beforethepurchase,whateffectdidthistransactionhaveonBicksler'scurrent ratio? a.increased b.decreased c.stayedthesame d.Thereisnotenoughinformationtoanswerthisquestion. e.Noneoftheaboveisacorrectanswer. ANSWER: b DIFFICULTY: Medium TOPICS: Currentratio
Test-Bank-CFIN-4-4th-Edition-Besley.docx