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Questions and Answers
Assets are calculated using the formula: Assets = liabilities + equity.
Assets are calculated using the formula: Assets = liabilities + equity.
True
The Quick Ratio is calculated as Current Assets divided by Current Liabilities.
The Quick Ratio is calculated as Current Assets divided by Current Liabilities.
False
Gross Profit is determined by subtracting COGS from Revenue.
Gross Profit is determined by subtracting COGS from Revenue.
True
Debt-to-Assets Ratio is equal to Total Liabilities divided by Total Assets.
Debt-to-Assets Ratio is equal to Total Liabilities divided by Total Assets.
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Current Liabilities include cash in the bank for a company.
Current Liabilities include cash in the bank for a company.
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Study Notes
Financial Ratios
- Assets, Liabilities, and Equity: Assets = Liabilities + Equity
- Capital Employed: Total assets - Current liabilities
-
Liquidity Ratios
- Current Ratio: Current Assets / Current Liabilities
- Quick Ratio: (Current Assets - Inventory) / Current Liabilities
- Cash Ratio: Cash / Current Liabilities
-
Leverage Ratios
- Debt-to-Equity Ratio: Total Liabilities / Equity
- Debt-to-Assets Ratio: Total Liabilities / Total Assets
-
Profitability Ratios
- Gross Profit Margin: (Gross Profit / Revenue) x 100
- Gross Profit: Revenue - Cost of Goods Sold (COGS)
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Efficiency Ratios
- Inventory Turnover: COGS / Average Inventory
- COGS: Opening Inventory + Purchases - Closing Inventory
- Average Inventory: (Opening Inventory + Closing Inventory) / 2
- Receivables Turnover: Revenue / Average Receivables
- Payables Turnover: Purchases / Average Payables
- Asset Turnover: Revenue / Total Assets
-
Operational Ratios
- Inventory days: Closing inventory / COGS
- Payable days: Payables due under one year / Purchases
- Receivable days: Receivables / Revenue
Current Assets and Liabilities
-
Current Assets (owned by the company):
- Closing Inventory
- Receivables
- Prepayments
- Cash in the bank
-
Current Liabilities (owed by the company):
- Bank overdraft
- Bank loan (due within one year)
- Accruals
- Payables (due under one year)
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Description
This quiz covers the fundamental financial ratios including liquidity, leverage, profitability, and efficiency ratios. Understand key concepts such as current ratio, debt-to-equity ratio, and gross profit margin. Test your knowledge on how these ratios are calculated and their significance in financial analysis.
