FIN370T Week 1 Practice- Chapter 3 (docx) - Course Sidekick (2024)

Oyster Fields has an average payment period of 21 days as compared to its industry average of 33 days. Suppliers in the industry have a 30-day credit policy. Which one of these statements most applies to Oyster Fields? Oyster Fields has a greater risk of being denied credit by its suppliers than do other firms in its industry. Oyster Fields is not maximizing its use of free financing. Oyster Fields should increase its accounts payable turnover rate if it wants to match its industry. Oyster Fields is managing its accounts payable better than the average firm in its industry. The Shoe Store has cash of $300, accounts receivable of $700, accounts payable of $800, inventory of $1,300, long-term debt of $1,900, and notes payable in three months of $500. What is the current ratio? 2.14 0.72 1.77 2.88 Russell's has a fixed asset turnover of 3.1. How do you interpret this information? Russell's requires $3.10 in long-term assets for every dollar of sales generated. Russell's requires $3.10 in fixed assets for every dollar of sales generated. Russell's generates $3.10 in sales for every dollar of fixed assets. Russell's generates $3.10 in sales for every dollar of long-term assets. Valley Markets has an inventory turnover of 3.2 and a capital intensity ratio of 1.9. What are the days in inventory for Valley Markets? 192 365 114 281 What must the capital intensity ratio be if the total asset turnover rate is 2? Unknown, as there is no relationship between the two 0.5 2.0 1.0 How is inventory turnover related to days' sales in inventory? Select all that apply. The shorter the inventory period, the higher the turnover rate The lower the turnover rate, the more days' sales that are held in inventory. The lower the turnover rate, the fewer days' sales that are held in inventory. The longer the inventory period, the higher the turnover rate.

FIN370T Week 1 Practice- Chapter 3 (docx) - Course Sidekick (2024)


How is a debt ratio of 0.45 interpreted? ›

How is a debt ratio of 0.45 interpreted?  A debt ratio of 0.45 means that a firm has $0.45 of equity for every dollar of debt.  A debt ratio of 0.45 means a firm has $0.45 of current liabilities for every dollar of current assets.

What does a debt to equity ratio of 0.8 mean multiple choice question? ›

Correct Answer

A debt-to-equity ratio of 0.8 means the firm has $0.80 of debt for every $1 of equity.

Is true or false the greater the debt the greater the financial leverage? ›

A company with a high debt-to-EBITDA carries a high degree of debt compared to what the company makes. The higher the debt-to-EBITDA, the more leverage a company is carrying.

What does Lester's current ratio of 0.86 indicate? ›

Lester's has a current ratio of 0.86. What does this indicate? The firm has $0.86 in current assets for every $1 it must pay in obligations within the next year.

Is 45 a good debt-to-income ratio? ›

Debt-to-income ratio of 36% to 49%

If you have a DTI ratio between 36% and 49%, this means that while the current amount of debt you have is likely manageable, it may be a good idea to pay off your debt. While lenders may be willing to offer you credit, a DTI ratio above 43% may deter some lenders.

How much debt is too much? ›

Most lenders say a DTI of 36% is acceptable, but they want to lend you money, so they're willing to cut some slack. Many financial advisors say a DTI higher than 35% means you have too much debt. Others stretch the boundaries up to the 49% mark.

Is 4 a good debt-to-equity ratio? ›

The optimal D/E ratio varies by industry, but it should not be above a level of 2.0. A D/E ratio of 2 indicates the company derives two-thirds of its capital financing from debt and one-third from shareholder equity.

What does 1.7 debt-to-equity ratio mean? ›

The debt to equity ratio compares how much debt you have to how much equity you have. This should give you a number less than one. If it is more than one, you have more debt than assets or you have made an error.

Is a debt-to-equity ratio of 2.5 bad? ›

Although it varies from industry to industry, a debt-to-equity ratio of around 2 or 2.5 is generally considered good. This ratio tells us that for every dollar invested in the company, about 66 cents come from debt, while the other 33 cents come from the company's equity.

How do rich people use debt? ›

Wealthy individuals create passive income through arbitrage by finding assets that generate income (such as businesses, real estate, or bonds) and then borrowing money against those assets to get leverage to purchase even more assets.

How rich people use debt to leverage? ›

Debt can make you rich when you use other people's money to control assets that appreciate in value and create cash flow that grows your net worth. Good debt creates leverage, for a small monthly fee you can control an asset worth many times the monthly payment.

Is leverage the same as debt? ›

Leverage is the amount of debt a company has in its mix of debt and equity (its capital structure). A company with more debt than average for its industry is said to be highly leveraged. Leverage is not necessarily bad.

Is 1.49 current ratio good? ›

Current ratios of 1.50 or greater would generally indicate ample liquidity.

What current ratio is too high? ›

A high ratio (greater than 2.0) indicates excessive current assets in the form of inventory, and underemployed capital. A low ratio (less than 1.0) indicates difficulty to meet short-term financial obligations, and the inability to take advantage of opportunities requiring quick cash.

What does a current ratio of 2.8 mean? ›

Therefore, with a current ratio of 2.8, the business can be in an excellent position to handle its short-term debts.

How is a debt ratio of 0.45 interpreted in Quizlet? ›

How is a debt ratio of 0.45 interpreted? A debt ratio of 0.45 means that for every dollar of assets, a firm has $0.45 of debt. Over the past three years, Art's Bakery has increased its debt and lowered its equity.

Is a debt ratio of 0.4 good? ›

Broadly speaking, ratios of 60% (0.6) or more are considered high, while ratios of 40% (0.4) or less are considered low. However, what constitutes a “good debt ratio” can vary depending on industry norms, business objectives, and economic conditions.

How is a debt ratio of 0.5 interpreted? ›

It is important to note that the low or high debt ratio depends on the particular industry. However, a debt ratio greater than 1 indicates high future financial risk, and a low debt ratio (usually around 0.5) means that the business has a good financial base and can be protracted.

What does a debt ratio of 0.5 mean? ›

Debt Ratio = 0.50, or 50%

A company that has a debt ratio at this level has a perfect balance in its debt and equity funding and would also be considered a low risk for a potential financing source.


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