20 Questions
What does the current ratio of 3.12:1 indicate about a company?
The company has more current assets than current liabilities, making it more liquid
How is the current ratio expressed?
All of the above
Which financial relationship does ratio analysis evaluate?
All of the above
What is the purpose of liquidity ratios?
To assess the interest of short-term creditors
What does a higher current ratio indicate?
The company is more liquid
What does the Acid Test Ratio exclude?
Inventory and prepaid expenses
What is the result of the Cash Ratio being less than 1?
The company cannot pay for their current liabilities using their total cash
What does the Debt Ratio measure?
How much of the assets are financed by debts
What is the purpose of the Solvency Ratio?
To determine whether an entity has more ownership rather than debts
What is the Acid Test Ratio for an entity with quick assets of $1,281,600 and current liabilities of $600,000?
2.14:1
What does the current ratio indicate about a company?
The company's short-term liquidity
What is the purpose of liquidity ratios in financial analysis?
To assess the company's ability to pay short-term obligations
What does a higher current ratio indicate?
Greater long-term solvency
Which financial relationship does ratio analysis primarily evaluate?
Relationship between assets and liabilities
What is the purpose of solvency ratios in financial analysis?
To evaluate the company's long-term ability to meet obligations
What does the Quick Acid Test Ratio exclude?
Inventory and prepaid expenses
What is the purpose of the Cash Ratio being less than 1?
The entity cannot pay for their current liabilities using their total cash
What does the Debt Ratio measure?
How much of the assets are financed by debts
What does a current ratio of 3.12:1 indicate about a company?
The company has more ownership rather than debts
What is the purpose of liquidity ratios?
To assess the entity's ability to meet short-term obligations
Test your knowledge of ratio analysis and its classification, including liquidity ratios, activity/efficiency ratios, solvency ratios, profitability, and market ratios. Understand how ratio analysis evaluates various financial relationships in entities.
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