Ratio and Cash Flow Analysis

1. An analyst has collected the following data about a firm: Receivables turnover = 10 times
Inventory turnover = 8 times Payables turnover = 12 times, what is the cash conversion
cycle?

a) 111 days
b) Not enough information
c) 51 days
d) 41 days

2. Fincap has debt of Rs.15 cr. Debt to Equity Ratio of 1.5:1. If PAT in 2005-06 was Rs.25
lakhs, what was the return on assets during the year?

a) 5%
b) 2%
c) 4%
d) 1%

3. RGB Incs has a gross profit of $45,000 on sales of $150,000. The balance sheet shows
an average total assets of $75000 with an average inventory balance of $15000. What are
RGBs total asset turnover and inventory turnover respectively?
a) 2.00 times, 5.00 times
b) 2.00 times, 7.00 times
c) 0.50 times, 0.33 times
d) .55 times, 0.75 times

4. Which of the following ratios is most important from a term lenders perspective?
a) Current Ratio
b) DSCR
c) Acid Test Ratio
d) ROE

5. If PGBs income statement shows sales of $1000, cost of goods sold of 700 pre-interest
operating expense of $300 and interest expense of $100, RGBs interest coverage ratio is
a) 1 times
b) 2 times
c) 3 times
d) 4 times

6. Cash that normally would have been used to pay the firms accounts payable is used
instead to pay off some of the firms long term debt. This will cause the firms;
a) cash conversion cycle to lengthen
b) current ratio to rise
c) payables turnover to rise
d) quick ratio to fall
 7. Which of the following would NOT cause a change in cash flow from operations

a) A decrease in notes payable

b) An increase in interest expense
c) An increase in accounts payable
d) An increase in cost of goods sold

8. The choice of inventory accounting method has cash flow effects because it affects
a) purchases
b) sales
c) taxes
d) the turnover ratio

9. Zippy Company is trying to determine which inventory method to use when prices are
rising and Inventories are increasing. They would like to have their cash flows as high as
possible. Which of the following methods would help Zippy Company to obtain the
highest amount of cash flow?

a) Specific identification
b) Last in First Out (LIFO)
c) Weighted average cost
d) First in First Out (FIFO)

10. In 2001, Jules Company realized that they understated their Inventory by $1,500 in 1999.
How should Jules Company handle this?

a) An adjustment to increase cost of goods sold (COGS) by $1,500 needs to be made.

b) An adjustment to increase inventory by $1,500 needs to be made.
c) An adjustment to reduce inventory by $1,500 needs to be made.
d) No adjustment needs to be made.

11. Which of the following potential parties to a repurchase agreement is least likely to
participate? A:

a) pension fund manager hedging a long-term asset.

b) financial institution.
c) portfolio manager for a money market fund.
d) dealer in Treasury securities.

12. The following is the sequence of events that pertains to the Riley Corporation:

Balance of $300 in allowance for doubtful accounts

Balance of $900 in accounts receivable
Write off or $100 of a receivable that is already included in the allowance for doubtful
accounts. How will the financial statements be affected by the write off?
a) The net realizable value will decrease to $500.
b) Allowance for doubtful accounts will increase to $400.
c) Allowance for doubtful accounts will decrease to $200.
d) The net realizable value will increase to $700.
13. Which of the following statements about repurchase agreements (repos) is TRUE?

a) In a repurchase agreement, the seller makes funds available to the buyer.

b) Repurchase agreements are risk-free.
c) The repurchase price of a repo is greater than the original selling price because of
movements in the bonds value during the repo period.
d) The same agreement is used for repurchase agreements and reverse purchase
agreements.

14. Which of the following statements regarding financing bond purchases with margin
accounts is FALSE?

a) The loan in a margin transaction is collateralized by the purchased security.

b) The required margin percentage changes daily.
c) In the U.S., margin accounts are regulated by the Federal Reserve.
d) Individuals are more likely than institutions to use margin accounts to finance
bond purchases.

15. If prices are rising and two firms are identical except for inventory methods: the firm
using FIFO will have

a) higher net income

b) lower inventory
c) lower net income
d) higher total cash flow

16. What does the term trading on equity mean?

a) Intra-day buying and selling of equity shares to maximize gain
b) Frequent buy-back of equity to reduce equity base
c) Strategy of having high leverage in order to maximize return for equity
shareholders
d) Short-sale of equity in a falling market

17. A commercial paper can have a maximum tenor of

a) 90 days
b) 365 days
c) 180 days
d) There is no restriction

18. All of the following will cause demand to increase EXCEPT

a) the price of substitute goods increases
b) consumer income falls
c) the price of complementary goods falls
d) future prices are expected to increase
19. The anti-dumping argument in favor of trade restrictions is the argument the
restrictions should be imposed to:
a) discourage foreign firms from engaging in price competition
b) prevent foreign firms from dumping unwanted products in domestic markets.
c) discourage foreign firms from exporting products of inferior quality.
d) prevent foreign firms from selling their product below cost.

20. Why does trading with low-wage countries not depress wage rates in high-wage
countries?
a) Comparative advantage and worker productivity determine who should produce
what, given other factors of production. A high-wage country with higher worker
productivity in one sector can produce those goods more efficiently than the low-
wage country and trade with a low-wage country that has higher worker
productivity in another sector.
b) The law of supply and demand for labor will provide a floor below which wages
cannot fall in either country and therefore, neither countrys workers lose in terms
of their respective wages.
c) Because low wage countries buy products from high wage countries thereby
increasing demand for workers and maintaining the wage level.
d) Because if the wage rates were to start falling, the government of the high wage
country would impose tariffs on the products of the low wage country to prevent
the wages from falling.

21. How many stocks Nifty consist of

a) 50
b) 500
c) 100
d) 200

22. Which is the largest bank in India in terms of assets?

a) ICICI Bank
b) HDFC Bank
c) State Bank of India
d) HSBC

23. Although most of the fastest growing jobs in todays economy will require a college
degree, many of the new jobs being created from home health side to desktop
publisher require knowledge other than that gained from earning a degree for workers
in those jobs, good basic skills in reading, communication, and mathematics play an
important role in getting a job and developing a career.
From the information given above it can be validly concluded that, in todays
economy,
a) skills in reading, communication, and mathematics play an important role in
developing a career as a desktop publisher
b) the majority of the new jobs being created require knowledge other than that
gained from earning a college degree
c) a job as a home health side will rely more on communication skills than on basic
skills in reading and mathematics
d) desktop publisher jobs and home health aide jobs are not among the fastest
growing jobs
24. According to the National Agricultural Aviation Society (NAAS) without the use of
crop protection products to control insects, weeds and diseases, crop yields per acre
will drop by more than 50 percent. The first serial application of insecticide occurred
in 1921 and it was a huge success. By contrast in todays economy all aircraft that
are classified as serial applicators do more than just apply insecticide, today, they also
spread seed and apply fertilizer,

From the information given above it CANNOT be validly concluded that

a) in todays economy, if an serial applicator is used, then it will be able to spread

seed and to apply fertilizer
b) in 1921, if an aircraft was used for the application of insecticide, then it was not
also used to spread seed
c) in todays economy, any aircraft that cannot be used to apply fertilizer cannot be
classified as an aerial applicator
d) according to the NAAS, if crop yields per acre drop by more than 50 percent, then
crop protection products have not been used to control insects, weeds, and
diseases

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