Chapter 35 – Solutions

Multiple Choice Solutions

1. b) Current ratio measures liquidity (ability to pay short-term obligations).

2. b) A current ratio of 1.5 indicates ability to pay short-term obligations (good liquidity).

3. b) Gross profit margin measures profitability after direct costs.

4. b) ROA measures efficiency of asset use.

5. b) Break-even point is minimum sales needed to cover all costs.

6. b) Margin of safety measures how much sales can decline before losses occur.

7. b) Favorable variance means actual better than budget.

8. b) KPIs should be 5-10 key indicators (focused set).

9. b) Operating cash flow should be positive for healthy business.

10. c) Financial analysis helps understand past, evaluate present, and plan for future.

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Note: Complete solutions for Problems Set A, Set B, and Comprehensive Problem are available in the instructor solutions manual.

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End of Chapter 35 Solutions