MCQ On Financial Management

Explanation
A current ratio is a measure of a company's ability to cover its short-term liabilities with its short-term assets. A ratio between 1.5 to 3 indicates that the company has enough current assets to cover its current liabilities, which is considered a healthy range. This means that the company is likely able to meet its short-term obligations without any significant issues. A ratio below 1.5 may suggest that the company is struggling to meet its short-term obligations, while a ratio above 3 may indicate that the company has too many current assets that are not being efficiently utilized.

Explanation
In ABC analysis, the 'A' class consists of items that have accurate records. This means that these items are closely monitored and their inventory levels are tracked accurately. Accurate records for 'A' class items are important because they are typically high-value items that require careful management to ensure that they are always available when needed. By having accurate records, businesses can make informed decisions regarding the ordering, stocking, and replenishment of these items, ultimately improving efficiency and reducing costs.

Explanation
The inventory turnover ratio measures how efficiently a company is managing its inventory by calculating the number of times inventory is sold and replaced in a given period. A high inventory turnover ratio indicates that inventory is being sold quickly, which suggests that there is no large inventory accumulation. On the other hand, a low inventory turnover ratio suggests that inventory is not being sold quickly, which could indicate a large inventory accumulation in anticipation of a future price rise. Therefore, the inventory turnover ratio is a reliable indicator of the symptom mentioned in the question.

Explanation
Cross-sectional analysis involves comparing the financial data of different organizations engaged in similar business during the same time period. This type of analysis allows for a comprehensive understanding of how different organizations are performing in the same industry. It helps identify trends, patterns, and differences among companies, providing valuable insights for decision-making and benchmarking purposes. Time series analysis, on the other hand, focuses on analyzing the financial data of a single organization over a period of time, while spatial data analysis is unrelated to financial data comparison.

Explanation
The Economic Order Quantity (EOQ) model assumes that demand is constant, storage space is unlimited, and prices of materials remain constant throughout the year. However, in reality, demand may vary throughout the year due to seasonal fluctuations or changing customer preferences. Additionally, storage space is often limited, and prices of materials can fluctuate due to market conditions. These limitations of the EOQ assumption make it less accurate in practical scenarios and may require adjustments or alternative models to optimize inventory management.