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Questions and Answers
Which ratio measures the firm's ability to repay long-term debt?
Which ratio measures the firm's use of its assets and control of its expenses to generate an acceptable rate of return?
Which ratio measures investor response to owning a company's stock and also the cost of issuing stock?
Which financial statement summarizes the net sales, cost of goods sold, and gross profit of a company?
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What does EBIT stand for?
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What does COGS stand for?
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Which ratio measures the availability of cash to pay debt?
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Which ratio measures the effectiveness of the firm's use of resources?
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Which ratio quantifies the firm's ability to repay long-term debt?
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Which ratio measures investor response to owning a company's stock?
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Which ratio calculates the return on investment for shareholders?
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Which ratio measures the firm's use of debt to finance its operations?
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Which ratio is used to assess the value of an investment in a company's shares?
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Which ratio measures the firm's ability to generate cash flow from its operations?
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Which of the following statements is true about financial ratios?
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What are some of the sources of data used in calculating financial ratios?
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Who uses financial ratios to compare the strengths and weaknesses in various companies?
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How are ratios usually quoted when they are usually or always less than 1?
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What does the reciprocal of a ratio express?
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What does a P/E ratio of 20 correspond to in terms of earnings yield?
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Study Notes
Financial Ratios
- The Debt-to-Equity Ratio measures a firm's ability to repay long-term debt.
- The Return on Investment (ROI) measures a firm's use of its assets and control of its expenses to generate an acceptable rate of return.
- The Price-to-Earnings (P/E) Ratio measures investor response to owning a company's stock and also the cost of issuing stock.
Financial Statements
- The Income Statement summarizes the net sales, cost of goods sold, and gross profit of a company.
Financial Terms
- EBIT stands for Earnings Before Interest and Taxes.
- COGS stands for Cost of Goods Sold.
Financial Ratios (continued)
- The Current Ratio measures the availability of cash to pay debt.
- The Asset Utilization Ratio measures the effectiveness of the firm's use of resources.
- The Long-Term Debt-to-Equity Ratio quantifies the firm's ability to repay long-term debt.
- The Price-to-Earnings (P/E) Ratio measures investor response to owning a company's stock.
- The Return on Equity (ROE) calculates the return on investment for shareholders.
- The Debt Ratio measures the firm's use of debt to finance its operations.
- The Price-to-Book (P/B) Ratio is used to assess the value of an investment in a company's shares.
- The Operating Cash Flow Ratio measures the firm's ability to generate cash flow from its operations.
Financial Ratio Analysis
- Financial ratios are used to compare the strengths and weaknesses of various companies.
- Ratios can be calculated using data from financial statements, industry averages, and market data.
- Financial ratios are often expressed as a decimal value, but can be quoted as a percentage when always or usually less than 1.
- The reciprocal of a ratio expresses the inverse of the original ratio.
- A P/E ratio of 20 corresponds to an earnings yield of 5%.
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Description
Test your knowledge of financial ratios and accounting measurements with this quiz. Learn about the significance of these ratios in evaluating and understanding an organization's financial health.
