CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Which of the following statements are false?

I. Long-term creditors have an avid interest in the accounts receivable turnover rate.
II. Operating income/Annual interest expense = Interest coverage
III. Operating income/Average total assets = Return on equity
A. I and II
B. I and III
C. All are false.
Explanation: I. Short-term creditors' primary interest is the firm's current position, which includes factors such as working capital, accounts receivable turnover rate, inventory turnover rate, operating cycle, current ratio, quick ratio, and unused lines of credit.

II. Interest coverage, or times interest earned, is a common measure of creditors' safety (particularly bondholders).

III. Return on equity is net income expressed as a percentage of average total stockholders' equity. Return on assets is operating income expressed as a percentage of average total assets. The return on assets is a measure of the efficiency with which management utilizes the assets of a business.

User Contributed Comments 7

User Comment
zack III is false
johnsk zack: that's why III is chosen. The question asks which is false!
jackwez II is wrong..?
reganbaha Interest coverage should use EBIT, otherwise you are double counting interest
reganbaha sorry, not double counting, but paying too much tax on int. exp.
gill15 EBIT is operating income and II is NOT wrong.

It's NOT the question
Danielm96 gill15 ebit is not operating income due to EBIT = operating and non operating income. thats why is wrong
You need to log in first to add your comment.