Question

QUESTION 4: Creditors would be most interested in which of the following ratios?

		times interest earned
		total asset turnover
		current ratio
		PE ratio

QUESTION 6: Activity (turnover) ratios indicate the firm’s _________ ability.

		liquidation
		profit generating
		debt servicing
		sales generating

QUESTION 7: Using the average inventory in the denominator of the inventory turnover ratio rather than using the year-end balance would be especially important for

		a firm with seasonal sales
		a firm with a high level of debt
		a company that has multiple business divisions
		a service firm

Answer 1

Answer 4:- Current Ratio

Explanation:- Creditors are most interested in liquidity ratios because they provide the best information on the cash flow of a company and measure its ability to pay its current liabilities or the money which a company owes to its creditors and the current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. Hence, Creditors would be most interested in it.

Answer 6:- Sales generating

Explanation:- Activity ratios measure the efficiency of a business in using and managing its resources to generate maximum possible revenue. It measures company's sales per another asset account—the most common asset accounts used are accounts receivable, inventory, and total assets. Hence, turnover ratios indicate the firm’s sales generating ability.

Answer 7:- a firm with seasonal sales

Explanation:- The need of using average inventory is especially important for a firm that experiences seasonality. In such a case, many retailers build inventory levels during specific periods to prepare for sales during the holiday season. So, using average inventory helps in providing more accurate picture.