Question

question 1 (1 point) which of the following is a liquidity ratio? question 1 options: 1) working capital 2) debt to total assets ratio 3) days sales in receivables 4) current ratio question 2 (1 point) which of the following is an example of an accounting policy that two companies might apply differently, thus making comparisons between the two more difficult? question 2 options: a) all of the choices are correct. b) diminishing-balance versus straight-line depreciation. c) fifo versus weighted-average inventory costing. d) the application of a single percentage to receivables to estimate the required allowance for doubtful accounts, versus the use of the aging method question 3 (1 point) which of the following is the best way to measure the ability of a company to pay long-term liabilities? question 3 options: a) profitability ratios b) total asset turnover ratios c) liquidity ratios d) solvency ratios question 4 (1 point) which of the following is the best way to measure a company's short-term ability to pay its maturing obligations and to meet unexpected needs for cash? question 4 options: a) cash to sales ratios b) solvency ratios c) liquidity ratios d) profitability ratios question 5 (1 point) which statement about a ratio calculated in the analysis of financial statements is true? question 5 options: a) it shows the dollar increase from one year to another. b) it expresses a mathematical relationship between two numbers. c) it is meaningful only if the numerator is greater than the denominator. d) it restates all items on a financial statement in terms of dollars of the same purchasing power.

Answer 1

1) The current ratio is a liquidity ratio that measures a company's ability to pay its short-term liabilities. 2) Comparisons between companies can be more difficult when they apply different accounting policies, such as FIFO versus weighted-average inventory costing. 3) Solvency ratios are the best way to measure a company's ability to pay long-term liabilities. 4) Liquidity ratios are the best way to measure a company's short-term ability to pay its obligations and meet unexpected needs for cash. 5) Ratios in financial statement analysis express a mathematical relationship between two numbers.

Step-by-step explanation:

Question 1:

The current ratio is a liquidity ratio. The current ratio measures a company's ability to pay its short-term liabilities using its current assets. It is calculated by dividing the current assets by the current liabilities.

Question 2:

The correct answer is

c) FIFO versus weighted-average inventory costing. FIFO and weighted-average are two different accounting policies for valuing inventory, and they can significantly impact a company's reported income and inventory value, making comparisons between companies more difficult.

Question 3:

The best way to measure the ability of a company to pay long-term liabilities is through

solvency ratios. Solvency ratios assess a company's long-term financial health by evaluating its ability to meet long-term debt obligations.

Question 4:

The best way to measure a company's short-term ability to pay its maturing obligations and meet unexpected needs for cash is through liquidity ratios. Liquidity ratios, such as the current ratio and the quick ratio, assess a company's ability to meet short-term obligations using its current assets.

Question 5:

The correct answer is

b) it expresses a mathematical relationship between two numbers. Ratios in financial statement analysis express a mathematical relationship between two numbers, such as revenue to expenses or assets to liabilities. They provide insights into a company's financial performance and position.