I’m working on a management exercise and need support to help me learn.
14. Asset Turnover. In each case, choose the firm that you expect to have the higher asset turnover ratio. (Hint: think about the likely nature of each firm’s business model. For example, would the firm require a lot or a little capital? Would it strive for high sales or high profit margins?) (LO4-3) a. Economics Consulting Group or Home Depot b. Catalog Shopping Network or Gucci c. Electric Utility Co. or Standard Supermarkets.
16. Leverage. A firm has a long-term debt–equity ratio of .4. Shareholders’ equity is $1 million. Current assets are $200,000, and the current ratio is 2. The only current liabilities are notes payable. What is the total debt ratio? (LO4-3).
19. Current Ratio. Would the following events increase or decrease a firm’s current ratio? (LO4-3) a. Inventory is sold. b. The firm takes out a bank loan to pay its suppliers. c. The firm arranges a line of credit with a bank that allows it to borrow at any time to pay its suppliers. d. A customer pays its overdue bills. e. The firm uses cash to buy additional inventory.
20. Financial Ratios. True or false? (LO4-3) a. A company’s debt-equity ratio is always less than 1. b. The quick ratio is always less than the current ratio. c. For a profitable company, the return on equity is always less than the return on assets.
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