If a company has a ratio that measures its financial leverage, these ratios are

Question

If a company has a ratio that measures its financial leverage, these ratios are known as __________ ratios.

Select one:

a. Asset management

b. Long-term solvency

c. Short-term solvency

d. Profitability

e. Book value

Which of the following is an example of a use of cash?

Select one:

a. Increase in notes payable

b. Decrease in inventory

c. Increase in long-term debt

d. Increase in accounts payable

e. Decrease in common stock

Which of the following is an example of a source of cash?

Select one:

a. Increase in accounts receivable

b. Decrease in common stock

c. Decrease in long-term debt

d. Decrease in accounts payable

e. Decrease in inventory

Explanation / Answer

1. Correct Option is "B", i.e., Long-term solvency ratio, it compares company debts with its assets, earnings and equity.

2. Correct Option is "E", i.e., Decrease in common stock which means redemption of stock. Hence, usage of cash;

whereas, Increase in notes payable, accounts payable are delayed payments not use of cash. Increase in LTD means cash inflow and decrease in inventory means sales, hence cash inflow.

3. Correct Option is "E", i.e., Decrease in inventory which means sales which means inflow of cash; whereas, Decrease in common stock, decrease in long term debt and decrease in accounts payable are uses of cash. Increase in accounts receivable means delay in the cash collection.

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