Miami University Wk 4 Types of Ratio Analysis and Operating Leverage Questions

Q1:
Which company has the higher operating leverage?
A. A firm that buys packaged honey from beekeepers, labels the packages and sells them to local stores and restaurants.
B. A firm that develops Android apps on a computer and an Android phone, then sells them in the Google Play store?

A. A
B. B
C. Not enough information is provided to answer this question.
D. They both have about the same leverage.

Q2:
What two types of ratio analysis (that are covered in Chapter 06a) does the Dupont Identity Method ignore?

A. Sales Growth
B. Price to Earnings
C. Economic Value Added
D. Leverage
E. Liquidity
F. Z Score
G. Efficiency and Turnover
H. Margins

Q3:

Firms A and B are comparable competitors (lE: they are “comps” of each other). A has a working capital ratio of 1.4 and B has a working capital ratio of 0.8. Which company has the better liquidity position?

A. They are roughly equivalent.
B. Not enough information is provided to answer this question.
C. B
D. A

Q4:

Firms A and B are comparable competitors (IE: they are “comps” of each other). A has a working capital ratio of 1.4 and B has a working capital ratio of 0.8. Is one of the companies ?nancially unsafe? Choose one of the Yes/No answers, and provide one reason for your choice.

A. Yes, B is unsafe.
B. Both ratios are well above zero.
C. Yes, A is unsafe.
D. The unsafe ?rm has fewer Working Capital Assets than Working Capital Liabilities.
E. The unsafe ?rm has fewer Current Assets than Current Liabilities.
F. The unsafe ?rm has fewer Working Capital Assets than Current Liabilities
G. No, both are safe.