1) A company can improve its liquidity by increasing its accounts payable, while
ID: 2751345 • Letter: 1
Question
1) A company can improve its liquidity by increasing its accounts payable, while holding all else constant. Is this true or False?
2) The higher the times interest earned ratio, the more comfortable are a firm’s creditors in the ability of the firm to meet its interest obligations. Is this True or False?
3) A firm’s management analyzes financial statement’s so that:
a)they can get feedback on their investing, financing, and working capital decisions by identifying trends in the various accounts that are reported in the financial statements.
b) similar to shareholders, they can focus on profitability, dividend, capital appreciation, and return on investment.
c) they can get more stock options.
d) a and b.
Explanation / Answer
Answer: 1
False:
Increase in accounts payable ,while holding all else constant will decrease the current ratio of the company. And hence will decrease the liquidity.
Answer: 2
True
Times interest earned ratio depicts a company's ability to cover the interest owed on debt obligations.
Times interest earned ratio = EBIT/Interest Expense
The higher the Time earned ratio, the more comfortable are a firm’s creditors in the ability of the firm to meet its interest obligations
Answer: 3
Both (a) and (b)
A firm’s management analyzes financial statement’s so that:
a)they can get feedback on their investing, financing, and working capital decisions by identifying trends in the various accounts that are reported in the financial statements
b) similar to shareholders, they can focus on profitability, dividend, capital appreciation, and return on investment.
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