A Firm's ________ Is the Level of Sales Necessary to Cover

question 102

Multiple Choice

A firm's ________ is the level of sales necessary to cover all operating costs, i.e., the point at which EBIT equals zero.

• A) cash breakeven point
• B) financial breakeven point
• C) operating breakeven point
• D) total breakeven point

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Definitions:

Acid-Test Ratio

A liquidity metric that measures a company's ability to pay off its current liabilities with its quick assets without relying on inventory sales.

Times Interest Earned

A financial metric that measures a company's ability to meet its debt obligations by comparing its interest expenses to its earnings before interest and taxes (EBIT).

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term liquidity and operational efficiency.

Total Current Assets

The sum of all assets a company expects to convert into cash within one year, including cash, accounts receivable, and inventory.