1. The days sales outstanding (DSO) ratio of a firm identifies: a. how much inve
ID: 2804031 • Letter: 1
Question
1. The days sales outstanding (DSO) ratio of a firm identifies:
a. how much investors are willing to pay for the firm's stock for each dollar of reported profits.
b. the profit (earnings) per dollar of sales.
c. how effectively the firm uses its plant and equipment to help generate sales.
d. the extent to which a firm's net operating income can safely decline.
e. the average length of time a firm must wait after making a credit sale before receiving cash.
2.A bond's value will increase with increases in interest rate over time.
a. True
b. False
3. The P/E ratio gives an indication of _____.
a. the par value of a stock
b. a firm's debt position
c. the payback period of a stock
d. the maturity value of a stock
e. a stock's dividend yield
4. A limitation of ratio analysis is that:
a. statistical procedures are considered to analyze the net effects of a set of ratios.
b. it is useful only for large, multidivisional firms.
c. inflation, which distorts the firm's balance sheet, is considered when calculating ratios.
d. window-dressing techniques will change the ratios of a firm.
e. seasonal factors that distort the firm's balance sheet are taken into account when calculating ratios.
Explanation / Answer
1. Correct answer is E
2. The statement is false.
3. Correct answer is C
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Day’s sales outstanding (DSO) is a measure of the average number of days that it takes a company to collect payment after a sale has been made.
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Interest rate is used to discount the cash inflows from the bond, so higher the interest rate, lower will be the cash inflow from the bond.
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P/E ratio = Price of the stock/Earning per share
It calculates the payback period of the stock.
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Hope that helps.
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