12 Questions
What is the primary purpose of liquidity ratios in finance?
To determine a company's ability to pay its debts
What is the optimal current ratio in finance?
2:1
What does a high inventory turnover ratio indicate?
Goods are sold quickly and inventory is being replenished
What is the debt-to-equity ratio measuring?
A company's leverage and solvency
What is the average collection period measuring?
The amount of time a company takes to collect its accounts receivable
What is the net working capital indicating?
A company's current assets that can be used to pay short-term liabilities
What is the primary purpose of establishing credit standards in a business?
To evaluate the creditworthiness of customers
What is the major difference between debt and equity financing?
Debt financing requires repayment, while equity financing does not
What is the purpose of a line of credit agreement?
To establish a formal legal agreement with a bank for borrowing and repaying money
What is the formula used to calculate the Net Present Value (NPV) of an investment?
NPV = Cash flow / (1 + i)^t
What is the primary purpose of factoring in a business?
To sell accounts receivable to another company at a discounted rate
What is the term for the cumulative net earnings of a company after a certain period?
Retained earnings
Test your understanding of finance and securities, including liquidity ratios, asset management ratios, and their applications in the financial system. Learn how to calculate and interpret ratios such as current ratio, quick ratio, and operating cash flow ratio.
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