Asked by Jordan Nolte on Jul 17, 2024
Verified
Which of the following is an example of window dressing?
A) borrowing on a long-term basis and using the proceeds to retire short-term debt to improve the current ratio
B) offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories
C) using some of the firm's cash to reduce long-term debt
D) any action that improves a firm's fundamental, long-run position and thus increases its intrinsic value.
Window Dressing
Techniques employed by firms to make their financial statements look better than they really are.
Current Ratio
A liquidity ratio that measures a company's ability to pay short-term obligations with its current assets over its current liabilities.
Long-Term Debt
Borrowings and financial obligations that are due for repayment beyond one year's time, often used for major investments or acquisitions.
- Identify the constraints and possible misunderstandings of financial ratios when applied without taking into account industry standards and seasonal fluctuations.
- Identify the impact of different accounting techniques and the valuation of assets on the analysis of financial ratios and comparisons between companies.
Verified Answer
Learning Objectives
- Identify the constraints and possible misunderstandings of financial ratios when applied without taking into account industry standards and seasonal fluctuations.
- Identify the impact of different accounting techniques and the valuation of assets on the analysis of financial ratios and comparisons between companies.
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