Financial Reporting And Analysis MCQ - Financial Reporting And Analysis Section 2

31 Selected financial information for Park’s Company is provided below:

Sale	$2.3 million
Cost of goods sold	$0.98 million
Cash	$0.5 million
Accounts receivable	$0.8 million
Inventory	$0.25 million
Accounts payable	$0.5 million

The company’s cash conversion cycle (in days) is closest to:

CCC = DOH + DSO – Days Payables = 365/(0.98/0.25) + 365/(2.3/0.8) – 365/(0.98/0.5) = 33.9.
When purchases are not available (as in this case), the COGS can be used to estimate payables turnover.

32 The interest coverage ratio is most likely an indicator of a company’s:

Interest coverage ratio measures a company’s ability to meet its interest obligations and is an indicator of company’s solvency.

33 The balance sheet data of a company is presented below:

Current Assets
Cash and cash equivalents	$1,900
Marketable securities	300
Notes and accounts receivable, trade	1,750
Allowance for doubtful accounts	(500)
Inventories	1,000
Deferred income taxes	540
Other current assets	250
Total current assets	$5,240
Current Liabilities
Accounts payable and other accrued liabilities	$2,800
Current portion of borrowings	1,020
Other current liabilities	1,260
Total current liabilities	$5,080

The company’s quick ratio is closest to:

Quick Ratio = (cash + marketable securities + receivables) / current liabilities = (1900 + 300 + 1750 - 500) / 5080 = 0.68. Note that ‘allowance for doubtful accounts’ needs to be subtracted to come up with the receivables number.

34 The following selected balance sheet and ratio data are available for a company:

Metric	2012	2011
Cash and cash equivalents	90.0
Marketable securities	350.5
Accounts receivables	10.0
Other current assets	120.1
Total current assets	570.6
Deferred revenues	75.0
Other current liabilities	112.5
Total current liabilities	187.5
Cash ratio		2.15
Quick ratio		2.70
Current ratio		2.89

Which of the following ratios decreased between 2011 and 2012?

Cash ratio = (Cash + Marketable securities) / (Current liabilities) = (90 + 350.5) / 187.5 = 2.3
Current ratio = (Current assets) / (Current liabilities) = 570.6 / 187.5 = 3.0
Quick ratio = (Cash + Marketable securities + Accounts receivables) / (Current liabilities) = (90 + 350.5 + 10) / 187.5 = 2.4
Between 2011 and 2012 the quick ratio declined while the other two ratios increased.

35 The financial information for Pear Company is provided below:

Sales	$2.8 million
Cost of goods sold	$2.3 million
Purchases	$2.1 million
Average receivables	$0.6 million
Average inventory	$0.5 million
Average payables	$0.2 million

The company’s cash conversion cycle (in days) is closest to:

CCC = DSO + DOH – Days Payables = 365 / (2.8/0.6) + 365 / (2.3/0.5) – 365 / (2.1/0.2) = 122