Question

QUESTION 1

1. 3M has the sales of $32,765 million, costs of $16,682 million, inventory of $4,366 million, receivables of $5,020 million, payables of $2,266 million, and total assets of $36,500 million in its latest financial statements. Compute its asset turnover ratio.

   		6.53
   		7.36
   		3.82
   		0.90

1 points   

QUESTION 2

1. Which of the following tells us the company’s average collect period?

   		365 / (Sales / Inventory)
   		Costs / Accounts Receivables
   		Costs / Inventory
   		365 / (Sales / Accounts Receivables)

1 points   

QUESTION 3

1. Which of the following statements about current ratio is NOT true?

   		For creditors, the higher the current ratio, the better.
   		For a healthy firm, current ratio should be less than one.
   		It is a measure of a firm’s short-term liquidity.
   		It is current assets / current liabilities.

Answer 1

Answer 1)

Assets Turnover Ratio = Net Sales / Average Total Assets

= 32765/ 36500

= 0.90

Option D is correct.

Answer 2)

Company’s average collect period = 365 / (Sales / Accounts Receivables)

OR

= 365 / Average Receivables Turnover Ratio

Option D is ocrrect.

Answer 3)

Option B is correct.

For a healthy firm, the ideal Current Ratio is 2. So current Ratio less than 1 is not a correct statement.

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