Indicate Whether Each of the Following Statements About Financial Statement

question 77

Short Answer

Indicate whether each of the following statements about financial statement analysis is true or false.
1. Working capital is a measure of the amount of current assets a company would have left after paying its current liabilities.
2. If a transaction causes a company's working capital to increase, the transaction caused the company to become less liquid.
3. Interpretation of a company's current ratio can be difficult because it is an absolute amount.
4. The quick ratio is a more conservative variation of the current ratio.
5. The quick ratio is usually calculated by using the following equation: cash + receivables + current marketable securities/current liabilities.

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Definitions:

Net Working Capital Requirement

The amount of current assets a company needs minus its current liabilities to continue its operations smoothly.

Marginal Tax Rate

The rate at which your last dollar of income is taxed, representing the percentage of tax applied to your income for each tax bracket in which you qualify.

Salvage Value

An asset's expected selling price once it has concluded its period of usefulness.

Sunk Costs

Past expenditures that have already been incurred and cannot be recovered.