Financial Ratio Mastery
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Questions and Answers

Which financial ratio measures a company's profitability by comparing its net income to its revenue?

  • Profit Margin (correct)
  • Debt-to-Equity Ratio
  • Return on Investment (ROI)
  • Current Ratio

    • Which financial ratio measures a company's ability to generate profit from its investments?

  • Debt-to-Equity Ratio
  • Current Ratio
  • Return on Investment (ROI) (correct)
  • Gross Profit Margin

    • Which financial ratio measures a company's ability to pay off its short-term liabilities with its short-term assets?

  • Current Ratio (correct)
  • Debt-to-Equity Ratio
  • Gross Profit Margin
  • Return on Investment (ROI)

    • Which financial ratio measures a company's efficiency in managing its inventory by comparing the cost of goods sold to the average inventory value?

    <p>Inventory turnover ratio</p> Signup and view all the answers

    Which financial ratio measures a company's ability to meet its long-term debt obligations by comparing its earnings before interest and taxes (EBIT) to its interest expense?

    <p>Interest coverage ratio</p> Signup and view all the answers

    Which financial ratio measures a company's ability to generate profit from its investments?

    <p>Return on Assets (ROA)</p> Signup and view all the answers

    Which financial ratio measures a company's efficiency in managing its inventory by comparing the cost of goods sold to the average inventory value?

    <p>Inventory Turnover Ratio</p> Signup and view all the answers

    Which financial ratio measures a company's liquidity by comparing its current assets to its current liabilities?

    <p>Current ratio</p> Signup and view all the answers

    Which financial ratio measures a company's profitability by comparing its net income to its revenue?

    <p>Net Profit Margin</p> Signup and view all the answers

    Which accounting principle requires that a business's financial statements be prepared assuming that the business will continue to operate indefinitely?

    <p>Going concern principle</p> Signup and view all the answers

    Which accounting principle requires that financial statements present all relevant information that could impact the decision-making of users?

    <p>Full disclosure principle</p> Signup and view all the answers

    Which accounting principle states that expenses should be recognized in the same period as the revenues they helped generate?

    <p>Matching principle</p> Signup and view all the answers

    Which financial valuation method calculates the present value of future cash flows and discounts them back to the present using a discount rate?

    <p>Income approach</p> Signup and view all the answers

    Which financial ratio measures a company's ability to meet its short-term obligations by comparing its current assets to its current liabilities?

    <p>Current ratio</p> Signup and view all the answers

    Which accounting principle requires that expenses should be recognized in the same period as the revenues they helped generate?

    <p>Matching principle</p> Signup and view all the answers

    Study Notes

    Financial Ratios

    • The net profit margin ratio measures a company's profitability by comparing its net income to its revenue.
    • The return on investment (ROI) ratio measures a company's ability to generate profit from its investments.
    • The current ratio measures a company's ability to pay off its short-term liabilities with its short-term assets.
    • The inventory turnover ratio measures a company's efficiency in managing its inventory by comparing the cost of goods sold to the average inventory value.
    • The interest coverage ratio measures a company's ability to meet its long-term debt obligations by comparing its earnings before interest and taxes (EBIT) to its interest expense.
    • The return on investment (ROI) ratio measures a company's ability to generate profit from its investments.
    • The inventory turnover ratio measures a company's efficiency in managing its inventory by comparing the cost of goods sold to the average inventory value.
    • The current ratio measures a company's liquidity by comparing its current assets to its current liabilities.

    Accounting Principles

    • The going concern principle requires that a business's financial statements be prepared assuming that the business will continue to operate indefinitely.
    • The full disclosure principle requires that financial statements present all relevant information that could impact the decision-making of users.
    • The matching principle states that expenses should be recognized in the same period as the revenues they helped generate.

    Financial Valuation

    • The discounted cash flow (DCF) method calculates the present value of future cash flows and discounts them back to the present using a discount rate.

    Financial Ratios (Again)

    • The current ratio measures a company's ability to meet its short-term obligations by comparing its current assets to its current liabilities.

    Accounting Principles (Again)

    • The matching principle requires that expenses should be recognized in the same period as the revenues they helped generate.

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    Description

    Test your knowledge of financial ratios with this quiz! Learn about the ratio that measures a company's ability to pay off short-term liabilities, the ratio that measures profitability, and the ratio that measures profit generation from investments. Challenge yourself and become a financial ratio expert!

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