Answer the following statements true (T) or false (F)

Question

1. Accounts receivable represent the cash owed to the venture by customers for goods and/or services that have been sold to them and paid for.
2. The days sales outstanding (DSO) ratio is used to assess the average number of days a venture takes to collect its receivables after they have been invoiced.
3. The cross-sectional benchmark approach compares the firm to two or more peer group companies at a specific point in time.
4. A company’s leverage ratio measures how much debt versus equity financing the firm has on its balance sheet.

Answer 1

1.False – Accounts receivable represent the cash owed to the venture by customers for goods and/or services that have been sold to them but not yet paid for.
2.True – This ratio provides information about how efficient the venture is at collecting payments from its customers:
DSO= (Accounts Receivables)/(Invoiced Sales in Period)×Days in Period
True – This ratio provides information about how efficient the venture is at collecting payments from its customers:
DSO= (Accounts Receivables)/(Invoiced Sales in Period)×Days in Period
3.True – By comparing the financial ratios of the firm against other firms or the industry, investors and management can get a better idea as to what management’s and the firm’s strengths and weaknesses are in relation to its peers.
4.True – A company’s leverage ratio measures how much debt versus equity the firm has on its balance sheet. Leverage ratios represent a measure of financial health. Generally, the more debt a company has the more volatile its return on equity and the higher its breakeven is.