All of the Following Are True Regarding Financial Statement Analysis

question 8

Multiple Choice

All of the following are true regarding financial statement analysis ratios associated with liabilities except

• A)a high times interest earned ratio indicates that a company is more likely to meet interest payments as scheduled.
• B)high liquidity ratios mean that lines of credit should be high to compensate.
• C)if a company's current ratio is lower than the industry average, then it may lack liquidity.
• D)unrecorded obligations causing sizeable differences between liquidity and solvency ratios can be ignored.

---

Definitions:

Capital Stock

The total amount of shares that a company can issue as authorized by its corporate charter, representing ownership in the company.

Redeemed Stock

Shares that have been bought back or repaid by the issuing company.

Financial Leverage

Financial leverage is the use of borrowed funds to increase the potential return of an investment, magnifying both potential gains and potential losses.

Dividend Rate

The total expected dividend payments from an investment or security expressed on an annual basis.