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Financial Ratio and Accounting Quiz

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Questions and Answers

Who uses financial ratios to assess a firm's financial health?

Customers of the firm

Competitors of the firm

Managers within a firm (correct)

Suppliers to the firm

What is the purpose of using financial ratios?

To determine the number of current shareholders

To calculate the market price of shares

To evaluate the overall financial condition of a corporation (correct)

To compare the earnings yield with bond yields

Why are some ratios usually quoted as percentages?

Because they are used by potential shareholders

Because it makes them easier to compare with bond yields

Because they are usually less than 1 (correct)

Because they are always greater than 1

What can be determined by taking the reciprocal of a ratio?

The earnings yield (D) Signup and view all the answers

How do financial analysts use financial ratios?

To compare strengths and weaknesses in various companies (C) Signup and view all the answers

What do financial ratios state?

The relative magnitude of two selected numerical values from financial statements (B) Signup and view all the answers

Who may use financial ratios to evaluate a firm's financial condition?

Managers within a firm, shareholders, and creditors (B) Signup and view all the answers

In what form are some ratios usually quoted?

Percentage value (A) Signup and view all the answers

What does taking the reciprocal of a ratio do?

It expresses the same information in a more understandable way (A) Signup and view all the answers

When can the reciprocal of a ratio be below 1?

When the original ratio is greater than 1 (D) Signup and view all the answers