BUS 320 Chapter 3 – Flashcards

Liquidity ratios indicate how fast a firm can generate cash to pay bills.

A banker or trade creditor is most concerned about a firm's profitability ratios.

The DuPont system of analysis emphasizes that profit generated by assets can be derived by various combinations of profit margins and asset turnover.

Return on equity will not change if the firm increases its use of debt.

A current ratio of 2 to 1 is always acceptable, for a company in any industry.

During disinflation, stock prices tend to go up because the investor's required rate of return goes down.

Intangible assets are becoming an important part of the assets in a company's financial statements because accountants are recognizing the growing impact of brand names.

Absolute values taken from financial statements are more useful than relative values.

A company can improve their ROE by changing their capital structure.

Times interest earned is an example of a profitability ratio.