Question

QUESTION 14: Which of the following ratios would be most useful to a creditor to determine an ongoing concern’s (ongoing company’s) creditworthiness?

		current ratio
		quick ratio
		total asset turnover
		times interest earned

QUESTION 21: Trico Windshield Wipers Corporation has a 24% return on equity. The debt ratio is 35%. If the total asset turnover is 1.5X, what is the firm's profit margin?

		13.85%
		11.31%
		14.25%
		10.40%
		none of these

Answer 1

14.

times interest earned

this is related to meeting the debt obligations of the company, thus related to creditworthiness

15.

debt ratio=35%

(debt/assets)=35%

1-(debt/assets)=1-35%

equity/assets=65%

equity multiplier=1/65%=1.5385

what is the firm's profit margin

=return on equity/(asset turnover*equity multiplier)

=24%/(1.5*1.5385)

=10.40%