Company a Has Current Assets of $42 Billion and Current

question 83

Multiple Choice

Company A has current assets of $42 billion and current liabilities of $41 billion. Company B has current assets of $2.7 billion and current liabilities of $1.8 billion. Which of the following statements is correct, based on this information?

• A) Company A is less likely than Company B to have sufficient working capital to meet its short-term needs.
• B) Company A has greater leverage than Company B.
• C) Company A has less leverage than Company B.
• D) Company A and Company B have roughly equivalent enterprise values.

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Definitions:

Foreign Exchange Gain

Profit realized from the conversion of foreign currency into the domestic currency at a higher exchange rate than when it was acquired.

Accounts Payable

A liability to a creditor, carried on an open account, usually for purchases of goods and services.

Net Income

The income that remains in a business after all costs and expenses have been subtracted from total revenue, indicative of the financial performance.

Cash Flow Hedge

A financial instrument intended to offset potential losses or gains that could be incurred by future cash flows, acting as a buffer against currency, interest rate, or commodity price changes.