Financial Ratio Analysis Quiz

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the quick ratio calculated based on the provided financial statements?

  • 1.5 Times (correct)
  • 1.2 Times
  • 1.7 Times
  • 1.4 Times

Why is the quick ratio considered a better measure of liquidity than the current ratio?

  • It considers only current assets
  • It excludes liabilities
  • It accounts for inventories
  • It excludes inventories (correct)

What does a higher inventory turnover ratio indicate?

  • Increasing inventory levels
  • Better inventory management (correct)
  • Decreased sales activity
  • Lower profit margins

What is the calculated inventory turnover ratio based on the financial statements?

<p>7.2 Times (B)</p> Signup and view all the answers

What does the average payment period measure?

<p>The efficiency in paying liabilities (B)</p> Signup and view all the answers

If a company has a current ratio of less than 1, what does it imply?

<p>It may struggle to meet short-term obligations (B)</p> Signup and view all the answers

What is the net profit after taxes as provided in the financial statements?

<p>$231,000 (C)</p> Signup and view all the answers

Which of the following ratios is NOT part of the financial ratios discussed?

<p>Debt-equity ratio (A)</p> Signup and view all the answers

What happens to each unit of currency when the price level rises?

<p>It buys fewer goods and services. (D)</p> Signup and view all the answers

How does inflation primarily affect fixed-income securities?

<p>It reduces their value. (C)</p> Signup and view all the answers

What is a consequence of higher interest rates on corporate spending?

<p>Companies may have to cut back on spending. (D)</p> Signup and view all the answers

What effect does a decrease in interest rates have on firms?

<p>It lowers their cost of finance. (C)</p> Signup and view all the answers

What typically occurs in the stock market when interest rates are falling?

<p>The stock market grows. (A)</p> Signup and view all the answers

What challenge does inflation present to businesses regarding production costs?

<p>Production costs increase. (A)</p> Signup and view all the answers

Which of the following describes the effect of higher interest rates on borrowing?

<p>Borrowing becomes more difficult and costly. (A)</p> Signup and view all the answers

What is one impact of increased uncertainty in the economy due to inflation?

<p>It can deter investment activities. (D)</p> Signup and view all the answers

What impact can new entrants have on established industries?

<p>They can limit the profit potential of existing firms. (D)</p> Signup and view all the answers

When is the bargaining power of a buyer group considered to be high?

<p>When switching costs for buyers are low. (B)</p> Signup and view all the answers

Which factor does NOT increase the threat of new entrants in an industry?

<p>Low product differentiation. (D)</p> Signup and view all the answers

What condition enhances the bargaining power of suppliers?

<p>Each supplier caters to unique product needs. (A)</p> Signup and view all the answers

What are entry barriers typically NOT influenced by?

<p>The historical performance of new entrants. (C)</p> Signup and view all the answers

What is a characteristic of a powerful supplier group?

<p>Being concentrated compared to the buyer group. (B)</p> Signup and view all the answers

What is a sign that the threat of new entrants is low?

<p>The industry enjoys economies of scale. (D)</p> Signup and view all the answers

Which of the following accurately describes backward integration?

<p>Buyers acquiring suppliers to secure their supply chain. (B)</p> Signup and view all the answers

What are the two primary variables for technical analysis?

<p>Time frames considered and technical indicators (B)</p> Signup and view all the answers

Which of the following time frames is NOT commonly examined in technical analysis?

<p>Weekly chart (D)</p> Signup and view all the answers

What information does the highest point of a candlestick represent?

<p>The highest price traded during that time period (D)</p> Signup and view all the answers

What does a blue candlestick body indicate?

<p>The closing price was higher than the opening price (B)</p> Signup and view all the answers

How does the selection of a time frame affect a trader's analysis?

<p>It reflects the trader’s personal trading style (C)</p> Signup and view all the answers

Which candlestick shows the price action over a 4-hour period?

<p>4-hour chart (B)</p> Signup and view all the answers

What does the 'body' of a candlestick represent?

<p>The opening and closing prices for the time period (A)</p> Signup and view all the answers

Which of the following is NOT a common feature of candlestick charting?

<p>Display of average trading volume (A)</p> Signup and view all the answers

What are the three major components of balance sheet analysis?

<p>Assets, Liabilities, Owner's Equity (D)</p> Signup and view all the answers

Why is the cash flow statement critical to understanding a company's fundamentals?

<p>It shows how much cash is generated and available for operations. (C)</p> Signup and view all the answers

What is referred to as a company's business model?

<p>How a company generates revenue (A)</p> Signup and view all the answers

What primarily drives a company's long-term success?

<p>Management's ability to maintain competitive advantage (A)</p> Signup and view all the answers

What role does corporate governance play in a company?

<p>To establish relationships among stakeholders and management (A)</p> Signup and view all the answers

Which component is NOT a focus of balance sheet analysis?

<p>Corporate Governance (D)</p> Signup and view all the answers

What does effective management within a company ensure?

<p>Successful execution of the business model (D)</p> Signup and view all the answers

Which of the following does NOT describe a characteristic of the cash flow statement?

<p>It shows projected future cash flows based on historical data. (D)</p> Signup and view all the answers

What does a doji candlestick specifically indicate?

<p>Market indecision and potential reversal (B)</p> Signup and view all the answers

Which statement is true about the characteristics of a doji candlestick?

<p>Opening and closing prices are equal. (C)</p> Signup and view all the answers

How does the length of the shadows on a doji candlestick affect its indication?

<p>Longer shadows indicate stronger market indecision. (B)</p> Signup and view all the answers

Which moving average strategy might suggest buying conditions?

<p>Buy as long as the price remains above the 50-period exponential moving average. (B)</p> Signup and view all the answers

What does a moving average crossover typically indicate?

<p>An entry signal to buy or sell. (B)</p> Signup and view all the answers

Which of the following statements about moving averages is false?

<p>Higher moving average numbers are less significant. (B)</p> Signup and view all the answers

Which type of moving average is specifically mentioned in a common trading strategy?

<p>Simple moving average (B)</p> Signup and view all the answers

In technical analysis, how are doji candlesticks most commonly interpreted?

<p>As potential reversal or trend change indicators. (C)</p> Signup and view all the answers

Flashcards

Quick Ratio (Acid-Test Ratio)

Measures a company's ability to pay its short-term liabilities with its most liquid assets, excluding inventory.

Inventory Turnover Ratio

Shows how many times a company sells and replaces its inventory during a period. A higher turnover means a company is selling inventory quickly.

Average Payment Period

Calculates the average number of days it takes a company to pay its suppliers.

Inflation

A measure of the overall price level of goods and services in an economy over time. When prices rise, each unit of currency buys fewer goods and services.

Signup and view all the flashcards

Inflation's impact on fixed-income securities

Inflation can reduce the value of fixed-income securities like bonds, as the future payments become worth less.

Signup and view all the flashcards

Inflation's impact on economic uncertainty

Rising prices make it harder to predict future costs and profits, increasing uncertainty for businesses and investors.

Signup and view all the flashcards

Inflation's impact on production costs

Increased prices for raw materials and production factors can reduce profit margins for businesses.

Signup and view all the flashcards

Interest rate

The cost of borrowing money for businesses, affecting their profitability and investment decisions.

Signup and view all the flashcards

Low interest rates and business profitability

Low interest rates mean businesses pay less to borrow money, leading to increased profitability and investment.

Signup and view all the flashcards

High interest rates and economic impact

High interest rates make borrowing more expensive, leading to reduced spending and potentially a decline in economic activity.

Signup and view all the flashcards

Falling interest rates and the stock market

Falling interest rates can encourage businesses to invest and expand, potentially leading to a growing stock market.

Signup and view all the flashcards

Threat of New Entrants

The possibility of new companies entering a market and competing with existing businesses. If it's high, existing companies face more pressure to keep prices low and improve their products.

Signup and view all the flashcards

Entry Barriers

Obstacles that make it difficult for new companies to enter a market. High barriers protect existing companies.

Signup and view all the flashcards

Rivalry Among Existing Competitors

The extent to which existing companies in a market compete with each other. High rivalry means companies are constantly trying to undercut each other.

Signup and view all the flashcards

Bargaining Power of Buyers

The power that buyers (customers) have in a market. If buyers have a lot of power, they can demand lower prices and better products.

Signup and view all the flashcards

Bargaining Power of Suppliers

The power that suppliers (those who provide raw materials or components) have in a market. If suppliers have a lot of power, they can charge higher prices and control the terms of agreements.

Signup and view all the flashcards

Threat of Substitute Products or Services

The threat that new products or services from outside a market might steal customers away. If it's high, companies have to keep innovating.

Signup and view all the flashcards

Porter's Five Forces

The theory that analyzes the five forces that determine the profit potential of an industry. It helps companies understand the competitive landscape they are in.

Signup and view all the flashcards

Entry Barriers (High)

Factors that make it difficult for new companies to enter a market. These can be things like high start-up costs, government regulations, or brand loyalty.

Signup and view all the flashcards

What is the balance sheet?

The balance sheet shows a company's financial health by outlining its assets (what it owns), liabilities (what it owes), and equity (the owner's investment).

Signup and view all the flashcards

What does the cash flow statement reveal about a company?

The cash flow statement highlights a company's cash flow activities, revealing how much cash comes in and goes out.

Signup and view all the flashcards

What is a company's business model?

A company's business model describes its core operations and how it generates revenue. It answers the fundamental question: 'What does the company do?'

Signup and view all the flashcards

What is a competitive advantage?

A competitive advantage is a unique characteristic that allows a company to outperform its rivals. It's a key driver of long-term success.

Signup and view all the flashcards

What is corporate governance?

Corporate governance refers to the internal policies and procedures that guide a company's operations and ensure ethical behavior.

Signup and view all the flashcards

Why is management important for investors?

Management plays a crucial role in steering a company toward success. Effective leaders can execute strategies and drive growth.

Signup and view all the flashcards

What is technical analysis?

Technical analysis uses historical price and trading volume data to identify patterns and predict future market trends.

Signup and view all the flashcards

How is technical analysis applied?

Technical analysis involves studying charts of different timeframes, such as hourly, daily, or weekly, to look for patterns and trends.

Signup and view all the flashcards

Doji Candlestick

A candlestick pattern where the opening and closing prices are the same, resulting in a flat line body. The length of the shadows (wicks) indicates the price range for the period and strengthens the signal of indecision.

Signup and view all the flashcards

Moving Average

A type of technical indicator used to analyze market trends based on the average price over a specific time period. The longer the period, the smoother the average.

Signup and view all the flashcards

Moving Average Crossover

A trading strategy that involves buying or selling an asset based on the relationship between two moving averages with different time periods. For example, buying when the shorter-term moving average crosses above the longer-term moving average.

Signup and view all the flashcards

Long-Legged Doji

A candlestick pattern characterized by long shadows, both above and below the body, indicating a period of market indecision and potential reversal.

Signup and view all the flashcards

Dragonfly Doji

A candlestick pattern where the opening and closing prices are the same, but the upper shadow is much longer than the lower shadow, suggesting a potential trend reversal.

Signup and view all the flashcards

Gravestone Doji

A candlestick pattern with the same opening and closing prices, but the lower shadow is significantly longer than the upper shadow. It may indicate a potential reversal in a downtrend.

Signup and view all the flashcards

Four-Price Doji

A candlestick pattern in which the opening and closing prices are the same, but the body is very small and the shadows are short. This suggests a lack of direction in the market.

Signup and view all the flashcards

Candlestick Patterns

Candlestick patterns are visual representations of price movements over a specific time period. They can reveal buying and selling pressure, help identify market sentiment, and predict trend reversals.

Signup and view all the flashcards

Time Frame

The period of time used to group price data on a chart, ranging from 1 minute to monthly or even yearly.

Signup and view all the flashcards

5-minute Chart

Studying price changes over 5 minutes, helping traders identify quick trends or entry points in that timeframe.

Signup and view all the flashcards

15-minute Chart

Analyzing price changes over 15 minutes, offering a slightly broader view than a 5-minute chart.

Signup and view all the flashcards

Hourly Chart

Examining price action over a full hour, providing a more significant picture of market movement.

Signup and view all the flashcards

4-hour Chart

Tracking price changes every 4 hours, offering a longer-term perspective suitable for swing trading.

Signup and view all the flashcards

Daily Chart

Showing daily price action, used by traders to analyze trends and identify potential entry and exit points.

Signup and view all the flashcards

Candlestick

A visual representation of price movement during a specific time frame using rectangular bars.

Signup and view all the flashcards

Candlestick Range

The highest and lowest prices reached during a specific time frame, forming the top and bottom of the candlestick.

Signup and view all the flashcards

Study Notes

Financial Ratio Analysis

  • Ratio analysis involves calculating and interpreting financial ratios to monitor a firm's performance.
  • Financial ratios are numerical expressions that show the relationship between financial statement items (assets, liabilities, revenues, expenses).
  • These are important for businesses, investors, creditors, to evaluate a company's health, performance, and market position.

Liquidity Financial Ratios

  • Current Ratio: (Current Assets / Current Liabilities) Measures ability to meet short-term obligations using current assets.
  • Quick Ratio: ((Current Assets - Inventory) / Current Liabilities) Measures immediate liquidity, excluding inventory, to cover short-term obligations.
  • Cash Ratio: (Cash and Cash Equivalents / Current Liabilities) Measures ability to meet short-term obligations using only cash.

Solvency Financial Ratios

  • Debt Ratio: (Total Liabilities / Total Assets) Measures proportion of assets financed by debt.
  • Equity Ratio: (Total Equity / Total Assets) Measures proportion of assets financed by shareholder's equity.
  • Debt-to-Equity Ratio: (Total Liabilities / Total Equity) Compares debt financing to equity financing.

Profitability Financial Ratios

  • Gross Margin Ratio: (Gross Profit / Net Sales) Measures gross profitability and pricing strategy effectiveness.
  • Operating Margin Ratio: (Operating Income / Net Sales) Provides insights into operational efficiency and profitability.
  • Net Profit Margin Ratio: (Net Income / Net Sales) Reveals overall profitability and financial performance.
  • Return on Assets (ROA): (Net Income / Total Assets) Measures management's effectiveness in utilizing assets to generate profit.
  • Return on Equity (ROE): (Net Income / Total Equity) Indicates the company's ability to generate returns for investors by relating profitability to equity.

Efficiency Financial Ratios

  • Receivables Turnover Ratio: (Sales Revenue / Accounts Receivable) Measures how well firms manage credit and collection.
  • Average Collection Period: (365 Days / Accounts Receivable Turnover Ratio) Measures the number of days it takes to collect accounts receivable.
  • Inventory Turnover Ratio: (Cost of Goods Sold / Average Inventory) Measures inventory management effectiveness.
  • Average Age of Inventory: (365 Days / Inventory Turnover Ratio) Measures the number of days of inventory the firm has.
  • Payables Turnover Ratio: (Net Purchases / Accounts Payable) Measures how well firms manage their payables.
  • Average Payment Period: (365 Days / Accounts Payable Turnover Ratio) Measures the number of days it takes for a company to pay its obligations.
  • Total Assets Turnover Ratio: (Sales / Total Assets) Indicates the efficiency of using assets to generate sales revenue.

Market Financial Ratios

  • Price-to-Earnings (P/E) Ratio: (Market Price per Share / Earnings per Share) Indicates market's perception of a company's growth and stock valuation.
  • Price-to-Sales (P/S) Ratio: (Market Price per Share / Sales per Share) Provides insights into the market's assessment of the firm's sales performance and growth prospects.
  • Price-to-Book (P/B) Ratio: (Market Price per Share / Book Value per Share) Measures market's perception of the firm's underlying asset value.

Capital Market & Ratios

  • Dividend Yield Ratio: (Dividend per Share / Market Price per Share) Indicates market's perception of a company's growth potential and stock valuation.
  • Return on Assets (ROA): Measures profitability in relation to total assets.
  • Return on Equity (ROE): Measures profitability in relation to shareholders' equity.

Fundamental Analysis

  • Fundamental analysis involves examining economic, financial, and other factors to determine a security's intrinsic value.
  • This utilizes a top-down approach, initially evaluating major factors affecting the economy, then industry-specific conditions, and finally examining individual companies.
  • Key Factors Utilized: Economic analysis, industry analysis, and company analysis are used.

Technical Analysis

  • Aims to predict future price movements using patterns and trends observed in the market's past behaviors.
  • Technical analysis relies on charts and indicators, such as moving averages, and candlestick patterns.

Summary of Regulatory Bodies

  • SEC: Regulates securities industry.
  • BSP: Central bank of the Philippines, manages monetary policy and financial stability within the country.
  • PDIC: Insures bank deposits in the Philippines.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Related Documents

Capital Market Analysis PDF

More Like This

Mastering Accounting Ratios
5 questions
Analisis Rasio Keuangan
5 questions

Analisis Rasio Keuangan

ComelyPersonification244 avatar
ComelyPersonification244
Use Quizgecko on...
Browser
Browser