Financial Ratio Quiz

Liquidity Ratios

• The Current Ratio measures a company's ability to pay off current liabilities with available current assets.

Acid-Test Ratio

• The Acid-Test Ratio, also known as the Quick Ratio, compares a company's most liquid assets to its current liabilities.

Solvency Ratios

• The Debt-to-Equity Ratio compares a company's liabilities to its assets.

Profitability Ratios

• The Return on Equity (ROE) Ratio measures a company's profitability against its book value.
• The Profit Margin Ratio measures the percentage of profit earned from each dollar of sales.

Efficiency Ratios

• The Asset Turnover Ratio shows how efficiently a company is using its assets to generate sales.
• The Operating Ratio measures a company's operational efficiency.

Debt Ratios

• The Debt Coverage Ratio determines a company's ability to pay off its debt obligations.

Valuation Ratios

• The Price-to-Earnings (P/E) Ratio is used to determine if a stock is correctly valued in comparison to another stock.
• The Price-to-Book (P/B) Value Ratio represents the market value of a company compared to its book value.

Book Value

• The equation to calculate a company's book value is: Total Shareholders' Equity / Total Number of Outstanding Shares.

Growth Ratios

• The PEG Ratio takes into account a company's growth rate along with its P/E ratio.
• A PEG Ratio of less than 1 infers that a company is undervalued.

Enterprise Value Ratios

• The EV/EBITDA Ratio considers a company's enterprise value, EBITDA, and debt, making it more reliable than the P/E ratio.