# Financial Ratios and Accounting Measurements Quiz

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## 20 Questions

Debt ratios

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

Profitability ratios

Market ratios

Income statement

### What does EBIT stand for?

Earnings before interest and taxes

### What does COGS stand for?

Cost of goods sold

Current ratio

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

Inventory conversion ratio

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

Debt to equity ratio

Dividend yield

### Which ratio calculates the return on investment for shareholders?

Earnings per share

Debt ratio

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

Price to book value ratio

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

Operating cash flow ratio

### Which of the following statements is true about financial ratios?

Financial ratios are used to evaluate the overall financial condition of a corporation or organization.

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

Balance sheet, income statement, statement of cash flows, and statement of changes in equity.

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

Financial analysts

Percentages

### What does the reciprocal of a ratio express?

The same information as the original ratio

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

An earnings yield of 5%

## 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%.

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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