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Questions and Answers
What does the DuPont equation measure?
Which financial metric is indicated by the leverage ratios?
What do liquidity ratios primarily measure?
What does the return on investment (ROI) measure?
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Which financial metric is indicated by the activity ratios?
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Study Notes
Financial Ratios
- The DuPont equation measures a company's return on equity (ROE) by breaking it down into three components: profit margin, asset turnover, and financial leverage.
- Leverage ratios indicate a company's level of indebtedness and its ability to meet its long-term obligations.
- Liquidity ratios primarily measure a company's ability to pay its short-term debts and meet its short-term financial obligations.
- The return on investment (ROI) measures the return or profit that an investment generates in relation to its cost.
- Activity ratios indicate how efficiently a company is using its assets to generate revenue.
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Description
Test your understanding of financial performance metrics with this quiz. Assess your knowledge of key indicators and measures used in strategic financial management.
