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Questions and Answers
What is the conventional period for short-term as per the text?
What is the conventional period for short-term as per the text?
- Up to 2 years
- Up to 1 year (correct)
- Up to 18 months
- Up to 6 months
Which of the following best defines liquidity?
Which of the following best defines liquidity?
- Generating long-term profits from investments
- The profitability of an organization
- The excess of current assets over current liabilities
- The ability to convert assets into cash or obtain cash to meet short-term obligations (correct)
What does lack of liquidity limit, as per the text?
What does lack of liquidity limit, as per the text?
- Coverage of current obligations and loss of capital investment (correct)
- Management actions and loss of owner control
- Severe illiquidity often precedes profitable opportunities
- Advantages of discounts and lower profitability
According to the text, what are current assets?
According to the text, what are current assets?
What is the definition of current liabilities according to the text?
What is the definition of current liabilities according to the text?
What is working capital according to the text?
What is working capital according to the text?
What does the current ratio measure?
What does the current ratio measure?
Which adjustments are needed to counter the limitations of the current ratio numerator?
Which adjustments are needed to counter the limitations of the current ratio numerator?
What do managerial policies regarding receivables and inventories primarily focus on?
What do managerial policies regarding receivables and inventories primarily focus on?
What does a current ratio above 2:1 indicate?
What does a current ratio above 2:1 indicate?
What is the net trade cycle computed as?
What is the net trade cycle computed as?
What is a constraint for technical default in many debt agreements?
What is a constraint for technical default in many debt agreements?
Why is the quality of both current assets and current liabilities important in evaluating the current ratio?
Why is the quality of both current assets and current liabilities important in evaluating the current ratio?
What is the primary focus of managerial policies regarding receivables and inventories?
What is the primary focus of managerial policies regarding receivables and inventories?
What do rule of thumb analysis (2:1) suggest about the current ratio?
What do rule of thumb analysis (2:1) suggest about the current ratio?
'No direct relation between balances of working capital accounts and likely patterns of future cash flows.' This statement emphasizes the importance of:
'No direct relation between balances of working capital accounts and likely patterns of future cash flows.' This statement emphasizes the importance of:
What does severe illiquidity often precede, as mentioned in the text?
What does severe illiquidity often precede, as mentioned in the text?
What is the impact of a current ratio above 2:1, according to the text?
What is the impact of a current ratio above 2:1, according to the text?
What is the primary focus of managerial policies regarding receivables and inventories, based on the text?
What is the primary focus of managerial policies regarding receivables and inventories, based on the text?
What does rule of thumb analysis (2:1) suggest about the current ratio, according to the text?
What does rule of thumb analysis (2:1) suggest about the current ratio, according to the text?
Which adjustments are needed to counter the limitations of the current ratio numerator, as per the text?
Which adjustments are needed to counter the limitations of the current ratio numerator, as per the text?
What is a constraint for technical default in many debt agreements, according to the text?
What is a constraint for technical default in many debt agreements, according to the text?
What is the net trade cycle computed as?
What is the net trade cycle computed as?
Which adjustments are needed to counter the limitations of the current ratio denominator?
Which adjustments are needed to counter the limitations of the current ratio denominator?
According to the text, what does a current ratio above 2:1 indicate?
According to the text, what does a current ratio above 2:1 indicate?
'No direct relation between balances of working capital accounts and likely patterns of future cash flows.' This statement emphasizes the importance of:
'No direct relation between balances of working capital accounts and likely patterns of future cash flows.' This statement emphasizes the importance of:
What does lack of liquidity limit, as per the text?
What does lack of liquidity limit, as per the text?
What do managerial policies regarding receivables and inventories primarily focus on?
What do managerial policies regarding receivables and inventories primarily focus on?
'Working capital requirements vary with industry conditions and the length of a company’s net trade cycle.' Which element is integral to the use of current ratio, according to the text?
'Working capital requirements vary with industry conditions and the length of a company’s net trade cycle.' Which element is integral to the use of current ratio, according to the text?
'Liquidity depends to a large extent on prospective cash flows and to a lesser extent on the level of cash and cash equivalents.' What is an important consideration for the numerator in the current ratio, as per the text?
'Liquidity depends to a large extent on prospective cash flows and to a lesser extent on the level of cash and cash equivalents.' What is an important consideration for the numerator in the current ratio, as per the text?
'No direct relation between balances of working capital accounts and likely patterns of future cash flows.' This statement emphasizes:
'No direct relation between balances of working capital accounts and likely patterns of future cash flows.' This statement emphasizes:
What is a constraint for technical default in many debt agreements?
What is a constraint for technical default in many debt agreements?
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