Question

In: Finance

Put a + if the relationship is positive; put a - if the relationship is negative....

Put a + if the relationship is positive; put a - if the relationship is negative. If there is no relationship, write NC.

Paying accounts payable faster _______________   the firm’s need for funds.

Retiring commercial paper ­___________ net working capital ___________ the debt ratio, and ___________ fixed asset turnover.

When a firm issues subordinated bonds, retained earnings ________ and the debt ratio ________.

The sale of a fixed asset for cash _________ accounts payable. __________ days sales outstanding,  and _______________   the current ratio.

If inventory is sold for a loss, times-interest earned __________.

Operating at a profit ________ long-term debt and __________ retained earnings.

Solutions

Expert Solution

Accounts payable can be made faster when a company has sufficient funds and is not in crisis. If it has to pay faster, then it would need more (+) funds.

Commercial papers are meant to cover short-term liabilities. Therefore, when they mature or retire the working capital gets increased '+' and debt will get reduced '-' and hence '-' debt ratio. But it does not affect fixed asset or asset turnover ratio, hence 'NC'.

Subordiante bond holders will be paid (interest) and hence retained earnings will (-) and debt ratio (+).

After the sale of a fixed asset (noncurrent asset) for cash, cash in hand (current asset) increases with which payments can be made to payable accounts and payables can be reduced. But it does not have direct relation (NC) with accounts payable.The sale of the fixed asset will be 'NC' on days sales outstanding as fixed asset is noncurrent asset and DSO is for current asset sale. It has '+' with current ratio, since on hand cash will increase.

If inventory is sold for loss, a corporation's income get reduced, and hence the times-interest earned. It is '-'.

Continuous profit will reduce (-) long-term debt and (+) retained earnings.


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