Financial Statements Analysis: Ratio Analysis Quiz
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Questions and Answers

What does the current ratio of 3.12:1 indicate about a company?

  • The company has an equal amount of current assets and current liabilities
  • The company's liquidity cannot be determined from the given information
  • The company has more current liabilities than current assets, making it less liquid
  • The company has more current assets than current liabilities, making it more liquid (correct)

    • How is the current ratio expressed?

  • As a fraction
  • As a decimal
  • As a percentage
  • All of the above (correct)

    • Which financial relationship does ratio analysis evaluate?

  • Long-term creditor interest
  • Short-term creditor interest
  • Investor and shareholder interest
  • All of the above (correct)

    • What is the purpose of liquidity ratios?

    <p>To assess the interest of short-term creditors</p> Signup and view all the answers

    What does a higher current ratio indicate?

    <p>The company is more liquid</p> Signup and view all the answers

    What does the Acid Test Ratio exclude?

    <p>Inventory and prepaid expenses</p> Signup and view all the answers

    What is the result of the Cash Ratio being less than 1?

    <p>The company cannot pay for their current liabilities using their total cash</p> Signup and view all the answers

    What does the Debt Ratio measure?

    <p>How much of the assets are financed by debts</p> Signup and view all the answers

    What is the purpose of the Solvency Ratio?

    <p>To determine whether an entity has more ownership rather than debts</p> Signup and view all the answers

    What is the Acid Test Ratio for an entity with quick assets of $1,281,600 and current liabilities of $600,000?

    <p>2.14:1</p> Signup and view all the answers

    What does the current ratio indicate about a company?

    <p>The company's short-term liquidity</p> Signup and view all the answers

    What is the purpose of liquidity ratios in financial analysis?

    <p>To assess the company's ability to pay short-term obligations</p> Signup and view all the answers

    What does a higher current ratio indicate?

    <p>Greater long-term solvency</p> Signup and view all the answers

    Which financial relationship does ratio analysis primarily evaluate?

    <p>Relationship between assets and liabilities</p> Signup and view all the answers

    What is the purpose of solvency ratios in financial analysis?

    <p>To evaluate the company's long-term ability to meet obligations</p> Signup and view all the answers

    What does the Quick Acid Test Ratio exclude?

    <p>Inventory and prepaid expenses</p> Signup and view all the answers

    What is the purpose of the Cash Ratio being less than 1?

    <p>The entity cannot pay for their current liabilities using their total cash</p> Signup and view all the answers

    What does the Debt Ratio measure?

    <p>How much of the assets are financed by debts</p> Signup and view all the answers

    What does a current ratio of 3.12:1 indicate about a company?

    <p>The company has more ownership rather than debts</p> Signup and view all the answers

    What is the purpose of liquidity ratios?

    <p>To assess the entity's ability to meet short-term obligations</p> Signup and view all the answers

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