Which of the Following Statements Is NOT CORRECT

question 56

Multiple Choice

Which of the following statements is NOT CORRECT?

• A) Credit policy has an impact on working capital because it influences both sales and the time before receivables are collected.
• B) The cash budget is useful to help estimate future financing needs, especially the need for short-term working capital loans.
• C) If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10 net 30 to net 60.
• D) Managing working capital is important because it influences financing decisions and the firm's profitability.
• E) A company may hold a relatively large amount of cash and marketable securities if it is uncertain about its volume of sales, profits, and cash flows during the coming year.

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Definitions:

Market-To-Book Ratio

A financial ratio used to compare a company's current market price to its book value, providing insight into the value the market places on a company’s equity.

Return On Equity

A financial ratio that measures the profitability of a corporation in relation to stockholders' equity, indicating how well the company uses investments to generate earnings growth.

ROCE

Return on Capital Employed; a financial ratio that measures a company's profitability and the efficiency with which its capital is used.

Financial Flexibility

The ability of an organization to adapt its financing and investment strategies in response to changes in the marketplace or its own operations.