Financial Ratios and Accounting Measurements Quiz
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Questions and Answers

Which ratio measures the firm's ability to repay long-term debt?

  • Debt ratios (correct)
  • Activity ratios
  • Liquidity ratios
  • Profitability ratios

    • Which ratio measures the firm's use of its assets and control of its expenses to generate an acceptable rate of return?

  • Debt ratios
  • Activity ratios
  • Profitability ratios (correct)
  • Liquidity ratios

    • Which ratio measures investor response to owning a company's stock and also the cost of issuing stock?

  • Liquidity ratios
  • Debt ratios
  • Activity ratios
  • Market ratios (correct)

    • Which financial statement summarizes the net sales, cost of goods sold, and gross profit of a company?

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

    What does EBIT stand for?

    <p>Earnings before interest and taxes</p> Signup and view all the answers

    What does COGS stand for?

    <p>Cost of goods sold</p> Signup and view all the answers

    Which ratio measures the availability of cash to pay debt?

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

    Which ratio measures the effectiveness of the firm's use of resources?

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

    Which ratio quantifies the firm's ability to repay long-term debt?

    <p>Debt to equity ratio</p> Signup and view all the answers

    Which ratio measures investor response to owning a company's stock?

    <p>Dividend yield</p> Signup and view all the answers

    Which ratio calculates the return on investment for shareholders?

    <p>Earnings per share</p> Signup and view all the answers

    Which ratio measures the firm's use of debt to finance its operations?

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

    Which ratio is used to assess the value of an investment in a company's shares?

    <p>Price to book value ratio</p> Signup and view all the answers

    Which ratio measures the firm's ability to generate cash flow from its operations?

    <p>Operating cash flow ratio</p> Signup and view all the answers

    Which of the following statements is true about financial ratios?

    <p>Financial ratios are used to evaluate the overall financial condition of a corporation or organization.</p> Signup and view all the answers

    What are some of the sources of data used in calculating financial ratios?

    <p>Balance sheet, income statement, statement of cash flows, and statement of changes in equity.</p> Signup and view all the answers

    Who uses financial ratios to compare the strengths and weaknesses in various companies?

    <p>Financial analysts</p> Signup and view all the answers

    How are ratios usually quoted when they are usually or always less than 1?

    <p>Percentages</p> Signup and view all the answers

    What does the reciprocal of a ratio express?

    <p>The same information as the original ratio</p> Signup and view all the answers

    What does a P/E ratio of 20 correspond to in terms of earnings yield?

    <p>An earnings yield of 5%</p> Signup and view all the answers

    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.

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