Financial Ratios Quiz

A present obligation of the entity to transfer economic resources as a result of past events.

Credit card balance arises from past purchases. The company still owes money for goods already acquired.

A credit card balance means the company owes money to the bank. This outflow will happen in the future.

Loan borrowed from a bank for purchasing machinery is a present obligation to pay back. The company owes the bank now, but will pay in installments.

The loan was taken out in the past to buy machinery. This past action created the current obligation to repay.

A financial document summarizing the financial position of a company at a specific point in time.

A balance sheet includes all assets, liabilities, and equity of a company.

A balance sheet should always balance because assets equal liabilities plus equity.

A financial statement that shows the financial position of a company at a specific point in time.

Resources that are controlled by a company and are expected to provide future economic benefits.

Obligations that a company owes to other entities.

The owners' claim on the assets of a company.

The fundamental accounting equation that states that assets are equal to the sum of liabilities and equity.

A list of all accounts and their balances after all adjustments have been made.

The side of the account where increases in an asset are recorded.

The side of the account where increases in a liability or equity are recorded.

The Statement of Financial Position, also known as the Balance Sheet, is a financial statement that provides a snapshot of a company's assets, liabilities, and equity at a specific point in time.

Assets are resources controlled by the company as a result of past events and from which future economic benefits are expected to flow to the company.

Liabilities are present obligations of the entity to transfer economic resources as a result of past events.

Equity represents the owners' stake in the company. It is the residual interest in the assets of the entity after deducting all its liabilities.

The fundamental accounting equation is the basis for the Statement of Financial Position. It states that assets are equal to the sum of liabilities and equity.

Current assets are assets that are expected to be converted into cash or used up within one year.

Non-current assets are assets that are expected to be used or held by the company for more than one year.

Current liabilities are obligations that are expected to be settled within one year.

Non-current liabilities are obligations that are due to be settled after more than one year.

Money paid into the company by shareholders. It represents initial capital investment in the business.

Represents the growth of the company's earnings after paying dividends. It's the accumulated profits that have not been distributed to shareholders.

A financial statement that summarizes the company's financial position at a specific point in time. It shows what the company owns (assets), owes (liabilities), and the value of its ownership (equity).

A ratio that measures a company's ability to meet its short-term obligations as they become due. A higher ratio generally indicates good financial health.

The most common liquidity ratio. It measures a company's ability to pay its current liabilities with its current assets. It's calculated by dividing current assets by current liabilities. For example, a current ratio of 2:1 means the company has twice as much current assets as current liabilities.

A variation of the current ratio. It excludes less liquid assets like inventory from the calculation. It provides a more conservative measure of short-term liquidity.

Financial ratios are valuable tools to analyze a company's performance, financial strengths, and weaknesses over time. They can be used to compare performance across different periods, assess trends, and compare against competitors.

A liquidity ratio that measures a company's ability to pay its short-term obligations using its most liquid assets. It is calculated by dividing current assets by current liabilities.

A liquidity ratio similar to the current ratio, but it excludes less liquid assets like inventory. It is calculated by dividing quick assets (current assets minus inventory) by current liabilities.

A solvency ratio that shows the proportion of a company's assets financed with debt. It is calculated by dividing total liabilities by total assets.

A measure of how well a company is utilizing its assets. It is calculated by dividing a company's net sales by its total assets.

A profitability ratio that measures how much profit a company generates for every dollar of sales. It is calculated by dividing net income by sales.

A financial statement that summarizes the company's revenues, expenses, and net income (or loss) over a specific period.

Assets that are expected to be converted into cash or used up within one year.

Assets that are expected to be used for more than one year.

Obligations of a company that are expected to be settled within one year.

Obligations of a company that are expected to be settled after one year.

A company's financial position is more favorable if it has a higher current ratio. This implies the company has a strong ability to meet its short-term obligations. A low current ratio could indicate a higher risk of not being able to pay bills on time.

A company's financial position is considered more favorable if it has a lower debt to total assets ratio. This means the company relies less on borrowed money and has more equity financing, signifying lower financial risk. A higher ratio could signal a greater reliance on debt financing.

In general, a company with a higher current ratio and a lower debt to total assets ratio indicates a more favorable financial position. This usually leads to greater confidence from investors and lenders and ultimately can translate into opportunities for growth and expansion.

Kenny's Kitchen has a stronger financial position than Gubba's Grub, as evidenced by a significantly higher current ratio and a lower debt to total assets ratio. This means Kenny's Kitchen is more liquid and has less reliance on borrowed money.