Which of the following statements is correct? a. An increase in a firm’s inventories will call for additional financing unless the increase is offset by an equal or larger decrease in some other asset account. b. A high quick ratio is always a good indication of a well-managed liquidity position. c. A relatively low return on assets (ROA) is always an indicator of managerial incompetence. d. A high degree of operating leverage lowers the risk by stabilizing the firm’s earnings stream

Which of the following statements is correct? a. An increase in a firm’s inventories will call for additional financing unless the increase is offset by an equal or larger decrease in some other asset account. b. A high quick ratio is always a good indication of a well-managed liquidity position. c. A relatively low return on assets (ROA) is always an indicator of managerial incompetence. d. A high degree of operating leverage lowers the risk by stabilizing the firm’s earnings stream

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 2QE

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Question

Which of the following statements is correct?
a. An increase in a firm’s inventories will call for additional financing unless the
increase is offset by an equal or larger decrease in some other asset account.
b. A high quick ratio is always a good indication of a well-managed liquidity
position.
c. A relatively low return on assets (ROA) is always an indicator of managerial
incompetence.
d. A high degree of operating leverage lowers the risk by stabilizing the firm’s
earnings stream

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