17. Each of the following is a liquidity ratio except the a. acid-test ratio. b.

Question

17. Each of the following is a liquidity ratio except the a. acid-test ratio. b. current ratio. c. debt to assets ratio. d. inventory turnover A liquidity ratio measures the a. income or operating success of an enterprise over a period of time. b. ability of the enterprise to survive over a long period of time. c. short-term ability of the enterprise to pay its maturing obligations and to meet 18. unexpected needs for cash. number of times interest is earned. d. A measure of the percentage of each dollar of sales that results in net income is a. profit margin. b. return on assets. c. return on common stockholders' equity d. earnings per share. 19. If the average collection period is 60 days, what is the accounts receivable turnover? a. 6.0 times b. 6.1 times c. 12.2 times d. None of these 20. Calculation and Analyses 21. Ale Corporation had net income of $240,000 and paid dividends to common stockholders of $40,000 in 2017. The weighted average number of shares outstanding in 2017 was 60,000 shares. Ale Corporation's common stock is selling for $76 per share on the New York Stock Exchange. Ale Corporation's price-earnings ratio is?

Explanation / Answer

17. c. debt to assets ratio.

The debt to assets ratio is a solvency ratio.

18. c. short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash.

19. a. profit margin.

20. b. 6.1 times

Average collection period = 365 / accounts receivable turnover

Accounts receivable turnover = 365 / 60 days = 6.083 or 6.1 times

21. Ale Corporation's price-earnings ratio is 19 times.

P/E ratio = price per share / earnings per share

= $76 / ($240,000 / 60,000)

= $76 / $4

= 19 times

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