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A low level of working capital is a positive sign for businesses that require a lot of inventory, such as retailers.
False
Keeping high levels of inventory is risk-free for a business and does not impact working capital.
False
Borrowing money using short-term bank loans increases working capital for a business.
False
The acid test ratio includes inventories in the calculation to evaluate liquidity.
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Increasing equity or borrowing more long-term credit are effective ways to improve both working capital and cash flow.
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Profitability measures a business's profit in relation to its revenue and inventory levels.
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Working capital refers to the ability of a business to pay its long-term debts.
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The acid test ratio is another term for the working capital ratio.
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If a company's current assets are less than its current liabilities, it indicates good liquidity.
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Asset turnover is calculated by dividing Turnover by the sum of Assets at the beginning and end of the year.
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Liquidity ratios are used to evaluate a company's ability to meet its short-term obligations.
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High inventory turnover implies that goods sell well and remain in stock for a long time.
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The balance sheet provides information on a company's profitability over time.
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Inventory turnover is calculated as Cost of sales divided by Average inventory.
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Managerial accounting helps managers make decisions about cost-cutting and pricing based on historical financial data.
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Equity ratio can be evaluated using the formula Equity / Total liabilities.
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Debt ratio is calculated as Total liabilities divided by Equity + Liabilities.
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Average net assets can be determined using the formula (Assets at the beginning of the year + Assets at the end of the year) / 2.
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