Quiz Ch 04 – T/F Equity Multiplier from ROE and ROA
Fundamentals of Financial Management, Concise
Brigham and Houston
09th Edition
True or false: When a firm’s ROE stands at 9% and its ROA at 6%, the equity multiplier must be 1.5.
True or false: When a firm’s ROE stands at 9% and its ROA at 6%, the equity multiplier must be 1.5.
True or false: Considering Firms A and B with equal assets, total invested capital, debt interest rate, BEP, financing through debt and equity, and tax rate, but differing debt to capital ratios, if BEP surpasses the debt interest rate, Firm A will yield a higher ROE due to its increased debt ratio.
True or false: Firms A and B share identical current ratios of 0.75, sales, and current liabilities. Yet, Firm A holds a superior inventory turnover ratio to B. Consequently, we can deduce that A’s quick ratio must be lower than B’s.
True or false: A limitation of ratio analysis is susceptibility to manipulation. For instance, if our current ratio is under 1.0, settling a portion of current liabilities using available cash would result in an increased current ratio, potentially enhancing the firm’s appearance of strength.
True or false: A challenge of ratio analysis is the potential for manipulation. For instance, if our current ratio surpasses 1.5, obtaining short-term loans to bolster our cash reserves would indeed lead to an INCREASE in the current ratio.
To improve Walter Industries’ current ratio, which of the following actions, considered independently, would be effective?